A firm's credit terms specify '1/10 net 30' and the accounts receivable days outstanding is 32 days. Which of the following can be concluded on the basis of this information?
A)All customers pay late.
B)All customers have paid within 32 days of purchase.
C)The average customer pays two days late.
D)Most customers pay on time.

Question

Quizplus · Accepted Answer

The credit terms '1/10 net 30' indicate that customers can receive a 1% discount if they pay within 10 days, otherwise the full payment is due within 30 days. Since the accounts receivable days outstanding is 32 days, it means that the average customer is taking 32 days to pay instead of the 30 days allowed. Therefore, option C is correct, stating that the average customer pays two days late. Option A is incorrect as it assumes that all customers pay late. Option B is also incorrect as it assumes that all customers pay within 32 days. Option D is also incorrect as it assumes that most customers pay on time, but we cannot infer this without knowing the actual percentage of customers that pay on time.

A Firm's Credit Terms Specify '1/10 Net 30' and the Accounts