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Chapter 3: 1DQ (page 247)

Under what circumstances would it be advisable to borrow money to take a cash discount?

Short Answer

Expert verified

The buyer can borrow money for taking advantage of the cash discount when the cost of borrowing is less than the amount of cash discount provided to the buyer.

Step by step solution

01

Meaning of cash discounts

The cash discount is offered to the buyers when they pay their due amount within a specified time. This amount is deducted from the invoice at the time of payment made by the buyer.

02

The circumstances when money should be borrowed for taking cash discount

The creditor should borrow money for taking advantage of the cash discount offered by the company when the cost of borrowing is less than the amount of discounts offered as it would be profitable for the creditor.

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