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    Management of Working Capital

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    1) Listed below are some common terms of sale. Could you help me by explaining what each means:
    a.2/30, net 60
    b.2/5, EOM, net 30
    c.COD

    Some of the above items involve a cash discount. Could you help me calculate the rate of interest paid by a customer who pays on the due date instead of taking the cash discount?

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    Solution Preview

    Please see response attached, which is also presented below. I hope this helps and good luck with your continued studies. Take care.

    RESPONSE:

    Q1. Listed below are some common terms of sale. Could you help me by explaining what each means:

    a.2/30, net 60

    Credit period = 60 days
    Discount period = 30 days
    Discount of 2% = Percent taken off if paid during the discount period of 30 days.

    In other words, you would pay the full amount less the 2% discount if you paid your bill during the discount period of 30 days (on or before the 30th day of the date of purchase), and after the 30 day discount period, you would pay full price up to ...

    Solution Summary

    This solution explains some common terms of sale, including: (a) 2/30, net 60; (b) 2/5, EOM, net 30, and (c) COD.

    $2.19

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