In credit terms of 3/15, n/45, the “3” represents the
A) Number of days in the discount period
B) Full amount of the invoice
C) Number of days when the entire amount is due
D) Percent of the cash discount.
Correct Answer: D) Percent of the cash discount.
Correct Answer Explanation: D) Percent of the cash discount.
Credit Term
➦ The term specified on credit sales states the credit period, the size of the cash discount period, and the beginning date of credit period is called credit terms. The terms of sale are different over time for the same firm.
➦ Generally, credit terms are affected by the economic nature of the product, the seller’s circumstances, the buyer’s circumstances, the size of the cash discount, etc.
➦ The following table provides an instant overview of the most commonly used credit terms and their meaning.
Explanation with Example
| Credit Terms | Explanations |
| Net 45 | The invoice must be paid within 45 days |
| Net 45 EOM | All goods shipped before the end of the month must be paid by the 30thh of the following month. |
| 3/15, net 45 | 3 percent of discount is provided if the payment is made within 15 days of the invoice date otherwise payment must be paid within 45 days |
➦ The “15” represents the number of days in which the cash discount is valid. The “n” represents the total net amount of the invoice.
➦ The “45” represents the number of days in which the full invoice amount is due if the cash discount is not taken.
➦ This means that if the customer pays the invoice within 15 days of the invoice date, they will receive a 3% discount on the total net amount of the invoice.
➦ If the customer does not pay within the 15 days, they will have to pay the full invoice amount within 45 days of the invoice date.
➦ In credit terms of 3/15, n/45, the customer has the opportunity to save money on their purchase by paying the invoice within the specified time frame.
➦ The 3% discount is a small percentage, but it can add up to significant savings for the customer if they take advantage of it.
➦ The 15-day time frame allows the customer to pay the invoice quickly and receive the discount, but it also gives them the flexibility to pay it at a later date if necessary.
➦ The n/45 portion of the credit terms indicates that the full invoice amount is due within 45 days of the invoice date if the cash discount is not taken.
➦ This gives the customer a longer time frame to pay the invoice, but it also means that they will not receive the discount if they choose to pay later.
➦ It is important for the customer to carefully consider their payment options and choose the one that is most beneficial for them.
➦ Overall, credit terms of 3/15, n/45 offer the customer a choice between receiving a discount on their purchase by paying the invoice quickly, or paying the full invoice amount at a later date.
➦ It is up to the customer to decide which option is best for their financial situation.
Why the Other Options are Incorrect?
A) Number of days in the discount period:
➦ This option is incorrect because the number “3” does not represent the number of days in the discount period.
➦ The correct representation for the discount period’s duration is “15” in this credit term.
➦ The “3” in the credit terms refers to the number of days within which the buyer can take advantage of a cash discount if they pay the invoice early.
➦ The discount period is actually represented by the second number in the credit terms, which in this case is “15.”
➦ The “3” specifically signifies the discount percentage, not the duration of the discount period.
➦ Therefore, option A is inaccurate because it misinterprets the role of the “3” in the credit terms.
B) Full amount of the invoice:
➦ This option is incorrect because the number “3” does not represent the full amount of the invoice.
➦ It represents the percentage of the cash discount offered if the buyer pays within the discount period.
➦ The full amount of the invoice is not explicitly stated within the credit terms provided. Therefore, option B misidentifies the significance of the “3” in the credit terms.
C) Number of days when the entire amount is due:
➦ This option is incorrect because the number “3” does not represent the number of days when the entire amount is due.
➦ The correct representation for the due date of the full invoice amount is “45” days in this credit term.
➦ The “3” represents the cash discount percentage, not the due date. The letter “n” typically stands for “net,” indicating the total credit period within which the full invoice amount must be paid. In this case, the credit period is 45 days.
➦ Therefore, option C incorrectly attributes the responsibility of indicating the due date for the full amount to the “3,” which is not its intended purpose.
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MBA,BBA.
I am Smirti Bam, an enthusiastic edu blogger with a passion for sharing insights into the dynamic world of business and management through this website.
I hold a MBA degree from Presidential Business School, Kathmandu, and a BBA degree with a specialization in Finance from Apex College,
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