Cash Discount on Early Payment
Sales
20,000 made on credit terms of 3/10 net 50. Company has opportunity of
investment @ 30%. Calculate the cash discount, and suggest the company for
discount acceptance or investment.
Solution
Credit
terms of 3/10 net 50 meant that 3% discount on payment of credit amount within
10 days, while maximum period of payment is 50 days.
Cash
Discount 3% x 20,000 = 600
(40/365)
x 20,000 = 2,197
Advantages
of investment is greater than discount acceptance, therefore discount should not
be accepted.
