Question

Solve the following application problem involving cash and trade discounts. Round to the nearest cent. The amount of an invoice from Aritsans Landscaping is $2188 with the terms of 4/10, 2/20, net 30. The invoice is dated October 12. (a) What amount should be paid on October 20? (b) What amount should be paid on October 30?

Answer 1

Pay terms 4/10, 2/20 Net 30 Means

4% discount allowed, if payment made in 10 days from invoice date.

2% discount allowed, if payment made in 20 days from invoice date.

Net credit period given without discount is 30 days.

If Payment made on Oct20:

No of days gap = Oct 20 - Oct 12

= 8 days - Hence eligible for 4% discount

Amount to be paid = Invoice * ( 1 - 0.04 )

= $ 2188 * 0.96

= 2100.48

If Payment made on Oct30:

No of days gap = Oct 30 - Oct 12

= 18 days - Hence eligible for 2% discount

Amount to be paid = Invoice * ( 1 - 0.02 )

= $ 2188 * 0.98

= $ 2144.24