BUSINESS ADMINISTRATION
FINANCIAL ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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10 percent discount for payment within 30 days
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2 percent discount for payment within 10 days or the full amount (less returns) due within 30 days
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two-tenths of a percent discount for payment within 30 days
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none of the above
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Detailed explanation-1: -Answer and Explanation: True, the terms 2/10, net/30 mean that a 2 percent discount is allowed on payments made within the 10 days discount period.
Detailed explanation-2: -2/10 net 30 is a trade credit extended to the buyer from the seller. A buyer will receive a 2% discount on the net amount if they pay the invoice in full within the first ten days of the invoice date. Otherwise, the full invoice amount is due in 30 days without a discount.
Detailed explanation-3: -It represents an agreement that the buyer will receive a 2% discount on the net invoice amount if they pay within 10 days. Otherwise, the full invoice amount is due within 30 days.
Detailed explanation-4: -Customers who purchase on credit are given 30 days to settle their obligation. However, if paid within 10 days, customers enjoy a 2% discount on the goods purchased. If a customer purchases $10, 000 from Company A on the terms 2/10 net 30 and pays within 10 days, the customer only needs to pay $10, 000 x 0.98 = $9, 800.
Detailed explanation-5: -In the example seen below, the sales term “2% 10 days net 30 days” gives an annualized rate of 36.7% and an effective annual rate of 43.9% if the interests are capitalized every 20 days throughout the whole year.