What Does 2/10 n/30 Mean in Accounting?

Companies often extend credit to customers, allowing them to receive goods or services immediately and pay later. This trade credit is a common form of short-term financing. Specific payment terms define payment expectations. One prevalent set of terms on invoices is “2/10 n/30,” designed to encourage prompt payment.

Understanding Each Part

The “2/10 n/30” term communicates payment conditions and early payment incentives. The “2” represents a 2% discount the buyer can receive, deducted from the total invoice amount. The “10” indicates the number of days from the invoice date within which the buyer must pay to qualify for this discount.

The “n/30” (or “net 30”) specifies the maximum credit period. If the buyer does not take the early payment discount, the full invoice amount is due within 30 days from the invoice date.

Calculating the Discount and Due Date

Applying “2/10 n/30” terms involves a straightforward calculation and understanding the payment timeline. For a $1,000 invoice with these terms, if the buyer pays within the 10-day discount window, they receive a 2% discount. This amounts to $20 ($1,000 0.02), meaning the buyer pays $980 ($1,000 – $20) to settle the invoice.

The payment structure creates two distinct periods. The discount period spans the initial 10 days from the invoice date, offering the option to pay the reduced amount. If payment is not made within these 10 days, the discount opportunity expires. The net payment period extends from day 11 to day 30. If the discount is not taken, the full $1,000 invoice amount is due by the 30th day from the invoice date.

Recording Transactions in Accounting

The “2/10 n/30” terms impact accounting records for both the seller and the buyer. When a seller makes a credit sale, they initially record Accounts Receivable and Sales Revenue. For example, a seller issuing a $1,000 invoice on credit debits Accounts Receivable for $1,000 and credits Sales Revenue for $1,000. Conversely, the buyer records a purchase by debiting Purchases (or Inventory) and crediting Accounts Payable for $1,000.

If the buyer takes the 2% discount and pays within 10 days, the seller receives $980 in cash. The seller debits Cash for $980, debits Sales Discount (a contra-revenue account) for $20, and credits Accounts Receivable for $1,000. From the buyer’s perspective, they debit Accounts Payable for $1,000, credit Cash for $980, and credit Purchase Discount (a contra-asset or contra-expense account) for $20.

Should the buyer not take the discount and pay after 10 days but within the 30-day net period, no discount applies. In this scenario, the seller debits Cash for $1,000 and credits Accounts Receivable for $1,000 upon receiving full payment. The buyer records this by debiting Accounts Payable for $1,000 and crediting Cash for $1,000, settling the full amount.