In credit terms of 1/10, n/30, the “1” represents the
a.
number of days in the discount period
b.
full amount of the invoice
c.
number of days when the entire amount is due
d.
percent of the cash discount
The Correct Answer and Explanation is :
The correct answer is:
d. percent of the cash discount
Explanation:
In credit terms such as 1/10, n/30, each component of the term provides specific information about the payment conditions:
- “1” represents the percentage of the cash discount available if the payment is made early.
- “10” represents the number of days within which the discount is available.
- “n” stands for net, meaning the full invoice amount must be paid if the discount is not taken.
- “30” represents the total number of days allowed for full payment without penalty.
So, in 1/10, n/30, the buyer gets a 1% discount on the invoice amount if they pay within 10 days. If they do not take the discount, the full amount (net amount) is due within 30 days.
Why is the answer d?
- The number of days in the discount period is represented by “10,” not “1.” So option a is incorrect.
- The full amount of the invoice is not represented by “1”; instead, it is the total amount due. So option b is incorrect.
- The number of days when the entire amount is due is given by “30,” not “1.” So option c is incorrect.
- The “1” represents the percent discount, making option d the correct choice.
This type of credit term encourages buyers to make early payments, improving the seller’s cash flow while giving the buyer a small savings opportunity.
Now, I will generate an image to visually explain these credit terms.
I’ve provided an infographic that visually explains the credit terms 1/10, n/30 with clear breakdowns of the discount percentage, payment period, and net payment deadline. Let me know if you need any modifications!