when the credit terms are 1 10 net 30 the net result becomes in essence an interest charge of 18 2 upon the failure to take the discount 
companies with higher profit margins are more likely to offer cash discounts the accounting entry for a cash discount taken may be performed in two ways the gross method of purchase discounts assumes the discount will not be taken and will only input the discount upon actual receipt of payment within the discount period therefore the entire amount of receivable will be debited when payment is received the receivable will be credited in the amount of the payment and the difference will be a credit to discounts taken the alternative method is called the net method for a discount of 1 10 net 30 it is assumed that the 1 discount will be taken this results in a receivable being debited for 99 of the total cost example of 1 10 net 30for example if 1 000 1 10 net 30 is written on a bill the buyer can take a 1 discount 1 000 0 01 10 and make a payment of 990 within 10 days or pay the entire 1 000 within 30 days if the invoice is not paid within the discount period no price reduction occurs and the invoice must be paid within the stipulated number of days before late fees may be assessed the second number is always the number of days of the discount period in the example above the discount period is 10 days finally the third number always reflects the invoice due date 