Accounting for IGCSE & O level - Advanced Principles (Section 1 - No. 35)
Is a reduction in the trade payables payment period good or bad for business?
Good: The business was previously taking longer to pay suppliers. The business may achieve cash discount for paying promptly. This will increase its profits.
Bad: The business was previously taking longer to pay suppliers. The business may achieve cash discount for paying promptly. This will increase its profits.
Good: The business was previously taking longer to pay suppliers. The business may achieve cash discount for paying promptly. This will reduce its profits.
Bad: The business was previously taking longer to pay supplies. The business may achieve cash discount for paying promptly. This will reduce its profits.
ব্যাখ্যা
A reduction is generally bad. This forces business to pay suppliers faster, losing out on potential cash discounts and increasing costs.