Chapter 10, Problem 1QY

What do credit terms of 2/10, n/30 mean?

1. 2–10 days to pay on time or 30 days before going to collection.
2. 2 percent discount if paid within 10 days, but 30 days to pay on time
3. 2–10 days to pay with a discount, net 30 days to pay after the discount period
4. 2–10 percent discount if paid within 30 days
5. None of the above

To determine

Identify the correct option to explain the given credit terms.

Answer to Problem 1QY

Option (b)

Explanation of Solution

Credit terms are the terms of payment offered by the seller to the buyer.

For example: Terms of payment is 1/10, n/30.

1/10, n/30 refers to the sales discount given to the buyer by the seller in case of prompt payment. 1/10, n/30 means the following:

• “1” is the discount percentage offered to the purchaser by the seller.
• “10” refers to the number of days available for the buyer to pay and take advantage of the discount.
• “n/30” indicates that if the payment is not made by the buyer within 30 days, then he might not be eligible for the sales discount. Hence, payment will be due for the net amount at the end of the current month.

Justification for the correct answer:

Option (b): Credit term of 2/10,n/30 means 2 percentage discount if paid within 10 days, but 30 days’ time to pay. Therefore, Option (b) is correct answer.

Justification for the incorrect answer:

• Option (a): 2 percentage of discount is allowed if paid within 10days but in this option it given as the time period. Hence, option (a) is incorrect answer.
• Option (c): 2 percentage of discount is allowed if paid within 10days but in this option given it as time period and 30 days to pay after the discount period. Hence, option (c) is the incorrect answer.
• Option (d): 2 percentage of discount is allowed if paid within the 30 days not 2-10 percentages. Hence, option (d) is the incorrect answer.
• Option (e) as the option (b) is correct answer, hence, option (e) is incorrect answer.

Conclusion

Therefore, option (b) is the correct answer.