An invoice dated February 9 in the amount of $45,000 is received by Reliance Corporation on February 13. Cash discount terms on the invoice are 2/10, n/30. On February 18, Reliance pays in the amount of $9,000 as a partial payment on the invoice. What is the credit Reliance receives for this payment?
Well, well, well, looks like Reliance Corporation is playing the payment game! Let's do some calculations to figure out the credit they receive.
The invoice amount is $45,000, and they paid $9,000 as a partial payment. Now, they want to know the credit they receive.
According to the cash discount terms of 2/10, n/30, it means they can enjoy a 2% discount if they pay within 10 days, and the full amount is due within 30 days.
Since they paid $9,000 within 10 days, they are eligible for the discount. So, the discount they receive is 2% of $9,000, which is $180.
Therefore, the credit Reliance Corporation receives for this payment is $180. Kaching!
To calculate the credit Reliance receives for the partial payment, first, we need to determine the cash discount available for early payment.
The cash discount terms stated on the invoice are 2/10, n/30.
This means if payment is made within 10 days, a 2% discount can be taken. Otherwise, the full amount is due within 30 days.
Since the invoice is received on February 13, we count the days from that date.
To determine the last day for the cash discount, we add 10 days:
February 13 + 10 days = February 23.
Therefore, if Reliance pays on or before February 23, they can apply the cash discount.
Now, let's calculate the amount of the cash discount:
Invoice amount = $45,000
Cash discount rate = 2%
Cash discount = Invoice amount * Cash discount rate
Cash discount = $45,000 * 2% = $900
So, if Reliance pays on or before February 23, they would be eligible for a cash discount of $900.
However, Reliance paid on February 18, which is within the eligible period for the cash discount.
Given that Reliance made a partial payment of $9,000, we can determine the credit Reliance receives for this payment.
Credit received = Partial payment - Cash discount
Credit received = $9,000 - $900
Credit received = $8,100
Therefore, Reliance receives a credit of $8,100 for this partial payment.
To calculate the credit Reliance receives for the partial payment, we need to determine the amount of the cash discount applied.
First, let's break down the terms:
- 2/10: This means that a 2% cash discount is available if the invoice is paid within 10 days.
- n/30: This means that the full invoice amount is due within 30 days.
The invoice was received by Reliance on February 13, and the cash discount period starts on the invoice date, which is February 9. So, the cash discount period ends 10 days after February 9, which is February 19. Therefore, if Reliance pays within this period, they are eligible for the cash discount.
The amount of the cash discount can be calculated by multiplying the invoice amount by the cash discount rate:
Cash Discount = Invoice Amount x Cash Discount Rate
Cash Discount = $45,000 x 2% = $900
Since Reliance made a partial payment of $9,000 on February 18, we can assume they want to take advantage of the cash discount. Therefore, the credit they receive for this payment will be reduced by the cash discount amount.
Credit Received = Partial Payment Amount - Cash Discount
Credit Received = $9,000 - $900 = $8,100
So, Reliance receives a credit of $8,100 for this payment.