In a perpetual inventory system, what do the credit terms "2/10, n/30" mean on an invoice?

• A. The buyer must pay 2/10 of the invoice amount within 30 days, and the remaining balance is due immediately.
• B. A 2% discount is available if payment is made within 30 days; otherwise, the net (full) amount is due within 10 days.
• C. A 2% discount is available if payment is made within 10 days; otherwise, the net (full) amount is due within 30 days.
• D. A 10% discount is available if payment is made within 2 days; otherwise, the net (full) amount is due within 30 days.

Answer: (C)

Verified step by step guidance

1. Understand that credit terms like "2/10, n/30" are common in accounting to specify payment conditions between a buyer and a seller.
2. The "2/10" part means the buyer can take a 2% discount if the invoice is paid within 10 days from the invoice date.
3. The "n/30" part means the net (full) amount of the invoice is due within 30 days if the discount is not taken.
4. So, the buyer has an incentive to pay early (within 10 days) to save 2%, otherwise the full amount must be paid by day 30.
5. This encourages prompt payment and helps the seller manage cash flow effectively.