A contractor receives an invoice for $25,000 worth of materials with payment terms of 2/10 net 30. If the contractor pays 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. The discount amount is $25,000 × 0.02 = $500, making the net amount due $25,000 - $500 = $24,500.
Why This Is the Correct Answer
The payment terms 2/10 net 30 offer a 2% early payment discount if the invoice is paid within 10 days. To calculate the discount, multiply the invoice amount by the discount percentage: $25,000 × 0.02 = $500. The net amount due after applying the discount is $25,000 - $500 = $24,500. This represents significant savings for maintaining good cash flow management.
Why the Other Options Are Wrong
Option C: $22,500
This amount ($23,500) would represent a 6% discount ($1,500 off), which is far too high and not what the payment terms specify.
Option D: $24,750
This amount ($24,750) would represent only a 1% discount ($250 off), not the 2% discount offered in the payment terms.
Memory Technique
Remember '2/10 net 30' as '2% off if paid in 10 days, full amount due in 30 days' - the format is always discount%/discount days/full payment days
Reference Hint
Business and Finance chapter covering accounts payable, payment terms, and cash flow management
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