The cash discount terms "2/10,net 30" mean that
A)the invoice is dated February 10 and must be paid by February 30.
B)the buyer will,in effect,be borrowing at a 36 percent annual interest rate if he takes 30 days to pay the invoice.
C)the buyer must make a 2 percent down payment,with the balance due in 10 to 30 days.
D)a 2 percent discount off the face value of the invoice is permitted if the bill is paid within 30 days.
E)None of these answers is correct.

Question

Quizplus · Accepted Answer

A discount of 2/10,net 30 means that the buyer earns a 2 percent discount for paying the invoice just 20 days sooner than it should be paid.By not taking the discount,the company in effect is borrowing at an annual rate of 36 percent: (360 days/20 days)= 18 periods; (18 periods × 2 percent)= 36 percent a year.

The Cash Discount Terms "2/10,net 30" Mean That