What is the average accounts payable for the restaurant chain?
A large chain of restaurants purchases inventory with a net price of $500,000 each day. The chain purchases under the credit terms of 2/15, net 40. They always take the discount, but take the full 15 days to pay their bills.
For firms selling goods and services it is essential that payments are made promptly to them by their clients so that expenses can be managed accordingly and they not find themselves without funds to pay for their own purchases. Often discounts are offered by sellers to increase the likelihood of prompt payments.
In the problem as the restaurant purchases inventory under the credit terms 2/15, net 40 it is allowed by the seller to make payments within a maximum duration of 40 days. If the payment is made within 15 days the restaurant receives a discount of 2%.
The restaurant makes purchases of $500000 but as payment is made within 15 days it also gets a discount of 2%. The net amount due is $490000.
The account payable for the restaurant is $490000.