When a firm initiates or increases a cash discount, the net effect on the accounts receivable investment is difficult to determine because the nondiscount takers paying earlier will reduce the accounts receivable investment, while the new customer accounts will increase this investment.

Question

Quizplus · Accepted Answer

The net effect on accounts receivable investment from initiating or increasing a cash discount is complex because while early payments from nondiscount takers reduce the accounts receivable balance, attracting new customers or encouraging more sales on credit can increase it, making the overall impact uncertain.

When a Firm Initiates or Increases a Cash Discount, the Net