International Association of Accessibility Professionals (IAAP) Certified Administrative Professional (CAP) Practice Exam

What is a sales discount?

1. A penalty for late payment

2. A price increase for bulk purchases

3. A price reduction for early payment

4. A fee for returning merchandise

The correct answer is: A price reduction for early payment

A sales discount refers to a price reduction offered to customers, typically as an incentive for early payment. This practice is common in various industries and helps businesses manage cash flow by encouraging prompt payment. By incentivizing early settlement of invoices, companies can improve their liquidity and reduce the risk of accounts receivable becoming overdue. In contrast, a penalty for late payment typically incurs additional charges or fees rather than a reduction. A price increase for bulk purchases, often referred to as a surcharge or premium, goes against the concept of a discount, which implies a decrease in cost. A fee for returning merchandise, while related to consumer transactions, does not align with the idea of a discount being a reduction on the selling price to encourage timely payments. Thus, the definition of a sales discount as a price reduction for early payment is accurate and reflects common business practices.