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) Most customers pay on time.
B) The average customer pays two days late.
C) All customers have paid within 32 days of purchase.
D) All customers pay late.

Question

Quizplus · Accepted Answer

The credit terms "1/10 net 30" means that the customers can take a cash discount of 1% off the total invoice amount if payment is made within 10 days of purchase. Otherwise, the full amount is due in 30 days. Since the accounts receivable days outstanding is 32 days, it means that on average, customers are taking 32 days to pay, which is 2 days after the discount period. Therefore, option B is the correct answer. Option A is incorrect as "1/10 net 30" already assumes that most customers pay on time. Option C and D are both incorrect as they are extreme and not supported by the given information.

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