A retailer pays on credit for 650 worth of inventory, terms...

A retailer pays on credit for $650 worth of inventory, terms 3/10, n/40. If the merchandiser pays within the discount window, how much will the retailer remit in cash to the manufacturer?
A. $\$ 19.50$
B. $\$ 630.50$
C. $\$ 650$
D. $\$ 195$

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Key Concepts

Net Payment Calculation

Net payment calculation is the process of subtracting any cash discount from the full invoice amount to arrive at the net amount to be remitted if payment is made within the discount window. This concept is essential to understand how early payment incentives adjust the total payment due.

Discount Calculation

Discount calculation involves determining the reduction in price based on the discount rate provided in the terms. In this case, calculating 3% of the purchase amount gives the monetary value of the discount available if the payment is made within the discount period.

Cash Discount

A cash discount is an incentive offered by suppliers to encourage early payment. With a stated discount rate, the purchaser pays less than the full invoice amount if the payment is completed within a specified discount period.

Trade Credit Terms

Trade credit terms refer to the conditions set by a supplier when offering a purchase on credit. These conditions typically include the period within which payment is due, along with any discounts available for early payment. The notation '3/10, n/40' specifies a 3% discount if the payment is made within 10 days, and the net (full) amount is due in 40 days.

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