In a perpetual inventory system, credit terms of “2/10, n/60” mean which of the following?

• A. A 2% cash discount is available if payment is made within 60 days; otherwise, the net amount is due within 10 days.
• B. A 2% cash discount is available if payment is made within 10 days; otherwise, the balance due is reduced by 60%.
• C. A 2% cash discount is available if payment is made within 10 days; otherwise, the net amount is due within 60 days.
• D. A 10% cash discount is available if payment is made within 2 days; otherwise, the net amount is due within 60 days.

Answer: (C)

Verified step by step guidance

1. Understand the notation of credit terms: "2/10, n/60" is a common way to express payment terms in accounting.
2. Break down the terms: "2/10" means a 2% discount is offered if payment is made within 10 days.
3. "n/60" means the net (full) amount is due within 60 days if the discount period is missed.
4. Interpret the terms together: The buyer can take a 2% discount by paying within 10 days; otherwise, the full invoice amount is due within 60 days.
5. Conclude that the correct interpretation matches the option stating: 'A 2% cash discount is available if payment is made within 10 days; otherwise, the net amount is due within 60 days.'