A contractor is managing accounts payable and has received a 2/10 net 30 payment term from a supplier. This means:
Correct Answer
B) 2% discount if paid within 10 days, full amount due in 30 days
The term 2/10 net 30 means the buyer can take a 2% discount if payment is made within 10 days, otherwise the full amount is due within 30 days. This is a common early payment incentive.
Why This Is the Correct Answer
Option B correctly interprets the standard payment term notation '2/10 net 30'. The first number (2) represents the percentage discount available, the second number (10) indicates the number of days within which payment must be made to receive the discount, and 'net 30' means the full invoice amount is due within 30 days if the discount is not taken. This is a widely used early payment incentive in business transactions.
Why the Other Options Are Wrong
Option A: 2% of invoice amount due in 10 days
This option incorrectly interprets the 2% as an interest charge rather than a discount. The 2/10 net 30 term offers a benefit (discount) for early payment, not a penalty.
Option C: 2% interest charged if paid after 10 days
This option incorrectly suggests that only 2% of the invoice amount is due in 10 days. The term refers to a 2% discount opportunity, not a partial payment amount.
Memory Technique
Think '2% OFF if paid in 10, otherwise NET full amount in 30' - the word 'net' always means full amount due.
Reference Hint
Look up 'Accounts Payable' or 'Payment Terms' in business management or accounting sections of contractor reference materials
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