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CA Intermediate · Financial Management and Strategic Management · Management of Payables (Creditors)

Under the trade credit term '2/10, net 30', a buyer who skips the cash discount and pays on the 30th day instead of the 10th day is effectively delaying payment by how many days beyond the discount period?

The buyer gets 20 extra days of credit. Discount is available if paid by day 10, and the full amount is due on day 30, so forgoing the discount stretches payment by 30 minus 10 equals 20 days beyond the discount period.

  1. A10 days
  2. B20 daysCorrect
  3. C30 days
  4. D40 days

Explanation

The discount period ends on day 10 and the net due date is day 30. The extra credit obtained by forgoing the discount is 30 - 10 = 20 days. Choosing 10 days confuses the discount period with the extra credit, and 30 days uses the full credit period.

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