What is the meaning of 2/10, N/30 invoice terms?

There is a cash discount provided by the seller to the buyer for prompt payment on the invoice.

The trade custom is what determines the terms offered by the seller.2% discount for the payment within 15 days and the full amount to be paid within 30 days are among the variations of the cash discount terms.

A cash discount is an expense to the seller.The account used to recognize the expense may be called "Sales Discount" or "Discount on Sales."

The account called "Purchases Discount" or "Discount on Purchases" is used by the buyer to treat such a discount as a reduction of the cost.

A customer gets $1,000 of goods from Michael & Co.The customer can deduct $20 from the purchase of $1,000 if they pay within 10 days of the invoice date.The amount can be settled for $980 if it is paid within 10 days.

The following entry is made by the buyer when they pay the account early enough to get a 2% discount.

When we are receiving payment from the Customer for a $1,000 account receivable early enough to offer a 2% discount, the seller would make the following entry: