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Accounts payable and credit terms for customers

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A company has been selling on a 3/10, net 30 basis. The company changes its credit terms to 2/20, net 90. The change will affect the customer's accounts payable and bank loan by:

increasing payables and decreasing bank loans or
increasing payables and increasing bank loans

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Solution Preview

First, we need to find the cost of not taking the trade credit for both before and after the change as follows: -

Nominal = Discount Percent x 360 days
Annual cost 100 - Discount Percent Days ...

Solution Summary

This solution is comprised of a detailed explanation to answer the change that will affect the customer's accounts payable and bank loan.