Question

Ed's Print Shop received an invoice dated May 10 for $2,500 with terms 3/10, 1/15, n/60. On May 22, Ed's Print Shop sent a partial payment of $2,000.
What is the actual amount that should be credited?
What is Ed's Print Shop's outstanding balance

Answer 1

Amount to be credited = $2,020

Outstanding balance = $480

Explanation:

The payment terms state that

• 3% discount may be taken within 10 days of the invoice date (up to May 20); or  

• 1% discount may be taken within 15 days of the invoice date (after May 20 but not later than May 25); or

• The net amount is due within 60 days of the invoice date if advantage is not taken of the cash discounts offered.
• The  3% cash discount is not applicable as the payment was made on May 22 which is after the end of the discount period. However, the 1% discount is allowed, since payment on May 22 is within the 15-day period for the 1% discount.

Amount to be credited

= 2000 / (1−0.01)

= 2000 / (0.99)

= $2,020

Outstanding balance

= 2500 - 2020

= $480