Question

A retailer purchases merchandise on May 1 with a list price of $30,000 and credit terms of 2/10, n/30. How much cash will be needed to pay this invoice on May 12? (show your work please)

Answer 1

The answer is, he must have the entire invoice amount which is $30,000 on 12^th May to settle the invoice.

The calculation:

The credit term is 2/10, n/30. The 2 stands for 2% cash discount on the invoice value and 10 stands for if the payment is within 10 days. The remaining portion of n/30 stands for net amount should be paid within 30 days without any discount if the first condition (pay within 10days) is not satisfied.

Hence, the buyer will be getting a cash discount of 2% on the invoice value if he pays within 10 days. Which means on or before 11^th May.

In the given scenario, he pays on 12^th May which is the 11^th day from the invoice date. So he is not qualified for the cash discount of 2% on the invoice value.

Invoice date = May 1^st

Payment date = May 12^th