Question

. The credit terms are 2/10 net 30. Which of the terms is the credit period?

1. 2
2. 10
3. 30
4. 20

5. Increasing the credit discount from 3% to 4% would:

1. Increase the interest savings associated with the discount
2. Decrease the interest savings associated with the discount
3. Have no impact on the interest savings

6. The interest rate savings associated with the discount is 12% and the short-term borrowing rate is 5%. The company should:

1. The company should not take the discount
2. The company should take the discount
3. There is insufficient information to make a decision

Answer 1

4.

The credit term 2/10 net 30 means, the buyer will receive a 2% discount if the payment is made within 10 days from the date of purchase otherwise the buyer will required to made the payment within 30 days.

In 2/ 10 net 30, 2 is the rate of discount denoted in percentage terms, 10 is the discount period denoted in number of days and 30 is the credit period.

The credit period is the maximum time in which the need to process the payment. Hence, the credit period is 30 days.