A contractor receives a material invoice for $25,000 with terms of 2/10 net 30. If paid within 10 days, what is the net amount due?
Correct Answer
A) $24,500
The terms 2/10 net 30 mean a 2% discount is available if paid within 10 days. $25,000 × 2% = $500 discount. Net amount = $25,000 - $500 = $24,500.
Why This Is the Correct Answer
The terms 2/10 net 30 offer a 2% early payment discount if the invoice is paid within 10 days of the invoice date. To calculate the discount, multiply the invoice amount by the discount percentage: $25,000 × 0.02 = $500. The net amount due with the early payment discount is the original amount minus the discount: $25,000 - $500 = $24,500.
Why the Other Options Are Wrong
Option B: $25,500
$25,000 is the full invoice amount without applying any early payment discount, which would only be correct if payment is made after the 10-day discount period.
Option C: $25,000
$25,500 incorrectly adds 2% to the invoice amount instead of subtracting the discount, showing a fundamental misunderstanding of payment terms.
Memory Technique
Think 'Discount/Days/Total' - the first number is always the discount percentage you SUBTRACT from the bill if paid within the middle number of days
Reference Hint
Business and Finance chapter covering accounts payable, payment terms, and cash flow management
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