The credit terms, 2/10, n/30, indicate that a:
options: a) two percent discount can be deducted if the invoice is paid after the tenth day following the sale, but before the thirtieth day. b) two percent discount can be deducted for a period up to thirty days following the date of sale. c) two percent discount can be deducted if the invoice is paid before the tenth day following the date of the sale. d) ten percent discount can be deducted if the invoice is paid within two days following the date of sale.
The correct answer and explanation is:
The correct answer is: c) two percent discount can be deducted if the invoice is paid before the tenth day following the date of the sale.
Explanation:
Credit terms are a common feature in business transactions, allowing buyers to pay for goods or services over time while offering potential discounts to encourage early payment. The term “2/10, n/30” is a specific type of credit term that outlines two key points:
- 2/10: This means that a 2% discount is available on the invoice amount if the buyer makes payment within 10 days from the invoice date. If the buyer does not take advantage of the discount by paying within 10 days, the full amount is due by the 30-day mark.
- n/30: This part indicates that the net (full) amount is due within 30 days from the invoice date, without any discount. If the buyer doesn’t take advantage of the early payment discount, the full amount must be paid by the 30th day.
For example, if a company issues an invoice for $1,000 with these terms, the buyer can deduct 2% ($20) if the payment is made within the first 10 days. This reduces the amount payable to $980. However, if payment is made after the 10-day period but within 30 days, the full $1,000 is due.
The primary reason for offering these terms is to incentivize early payment, improving cash flow for the seller and providing a financial benefit to the buyer who can afford to pay early.