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A firm has credit sales of 144,000 yearly with credit terms 30 days that is also...

A firm has credit sales of 144,000 yearly with credit terms 30 days that is also the average collection period and no discount for early payment. Now it considers new trade terms of 2/10 net 30 days.
What would be the incremental decrease in account receivables if the new trade terms are accepted by all customers?

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Answer #1

Answer: In the question, it is said that credit sales is 144000 yearly with a credit term of 30 days. However, as per the new trade terms, a discount of 2% is offered to the customers if they make their payment within 10 days.

Therefore, if the customer pays within 10 days, the amount received by the company will be 144000*(100-2)% i.e. 141120 for the year.

i.e. 2880 less received by the company (144000-141120)

On the other hand, if the customer pays after 10 days, then there will be no discount and the amount received by the company will be 144000 for the year

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