Question

A company collected 10,000 cash from a customer as a deposit for goods that will ship next quarter. What is the purpose of collecting this cash?

1) To increase the company's cash flow
2) To reduce the customer's liability
3) To ensure the customer's commitment to the purchase
4) To cover the cost of shipping the goods

Answer 1

The main purpose of collecting a cash deposit for future goods shipment is to ensure the customer's commitment to completing the transaction.

Step-by-step explanation:

The primary purpose of collecting a cash deposit from a customer for goods that will ship in the future is to ensure the customer's commitment to the purchase. When a company receives a deposit, it does not necessarily cover the cost of shipping nor does it directly reduce the customer's liability, although it may increase the company's cash flow incidentally. However, these are not the main reasons for the deposit.

The upfront payment acts as a show of good faith by the customer, indicating they are serious about completing the transaction and providing the company with assurance that they will not back out of the deal at a later point, which could potentially leave the company with an unwanted surplus of goods or lost revenue from other sales opportunities. This practice is common in many business transactions involving goods or services that are customized, high-value, or require a significant time delay between the sale and the delivery.