Question

If a company is given credit terms of 2/10, n/30, it should________.

(A) pay within the discount period and recognize a savings.
(B) hold off paying the bill until the end of the credit period, while investing the money at 10% annual interest during this time.
(C) recognize that the supplier is desperate for cash and withhold payment until the end of the credit period while negotiating a lower sales price.
(D) pay within the credit period but don't take the trouble to invest the cash while waiting to pay the bill.

Answer 1

(A) pay within the discount period and recognize a savings.

Step-by-step explanation:

The given credit terms of 2/10, n/30 means

If the payment is paid within 10 days so 2% discount is given and the total credit period given is 30 days

Suppose we take an example

A buys the merchandise of goods from B for $10,000 on April 1. The payment is doe by A on April 7

So, the net payment is

= $10,000 - $10,000 × 2%

= $10,000 - $200

= $9,800

The $200 shows the discount which A avails and termed as a savings