How would the cash budget be affected if our firm’s suppliers offered us terms of “2/10, net 30,” rather than “net 30,” and we decided to take the discount?

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How would the cash budget be affected if our firm’s suppliers offered us terms of “2/10, net 30,” rather than “net 30,” and we decided to take the discount?

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How would the cash budget be affected if our firm’s suppliers offered us terms of “2/10, net 30,” rather than “net 30,” and we decided to take the discount?

Explanation & AnswerSolution by a verified expert

Explanation

If the suppliers of the firm offered 2/10, net 30, it means that the 2% discount will be given to the customers if payment will be made within 10 days; otherwise the full amount is due in 30 days.
 
The cash budget would be affected if the firm will offer a discount to trade receivables for prompt payment. The receipts side of the cash budget would be adjusted according to the reduction in the balance of amount received. As a result, the cash budget would be decreased.

Verified Answer

The receipt side of the cash budget would need to be revised by reducing the receivable account balance if the firm offers “2/10, net 30,” rather than “net 30.

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