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 alternatives is correct.

Question

Quizplus · Accepted Answer

The terms "2/10, net 30" mean that the buyer can take a 2% discount if the invoice is paid within 10 days; otherwise, the full amount is due in 30 days. If the buyer forgoes the discount to pay in 30 days, the cost of not taking the discount equates to a high annual interest rate, which can be approximated to 36% in this context.

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