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Discounts: Trade and Cash

#7. Discounts: Trade and Cash. Learning Unit Objectives LU7.1 Trade Discounts -- Single and Chain Calculate single trade discounts with formulas and complements Find list price when net price and trade discount rate are known

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Discounts: Trade and Cash

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  1. #7 Discounts: Trade and Cash Learning Unit Objectives LU7.1 Trade Discounts -- Single and Chain Calculate single trade discounts with formulas and complements Find list price when net price and trade discount rate are known Calculate chain discounts with the net price equivalent rate and single equivalent discount rate

  2. #7 Discounts: Trade and Cash Learning Unit Objectives LU7.2 Cash Discounts, Credit Terms, and Partial Payments Explain the freight terms FOB shipping point and FOB destination and their effect on cash discounts List and explain typical discount periods and credit periods that a business may offer Calculate outstanding balance for partial payments

  3. Trade Discount Amount & Net Price Formulas Trade discount amount = List price x Trade discount rate Net Price = List price - Trade discount amount

  4. Complement Complement Complement - The difference between the discount rate and 100% 60% If the trade discount is 40%, the complement is 60% (100%-40%) 40% Trade Discount

  5. Single Trade Discount The price of office equipment is $3,000. The manufacturer offers a 30% trade discount. What are the trade discount amount (TDA) and the net price? 30% TDA = $3,000 x .30 = $900 Net Price = $3,000 - $900 = $2,100 Using Complement $3,000 x .70 = $2,100

  6. Calculating List Price When Net Price and Trade Discount Rate Are Known List Price = Net Price . Complement of trade discount rate The price of office equipment has a $2,100 net price and a 30% trade discount. What is the list price? 100% - 30% = 70% $2,100 .70 NP = $3,000

  7. Chain Discounts Two or more discounts: 15/10/5 To calculate discount 15 + 10 + 5 = 30% Find the net price equivalent rate (multiply the complements) .85 x .90 x .95 = .72675

  8. Chain Discounts The price of a office furniture is $20,000. The chain discount is 20/10/5 what is the net price? Find the net price equivalent rate (multiply the complements) .80 x .90 x .95 = .684 $20,000 x .684 = $13,680 Trade Discount Amount $20,000 - $13,680 = $6,320 or find single equivalent rate 1.00 - .684 - .316 $20,000 x .316 = $6,320

  9. Freight Terms FOB Shipping Point - buyer pays the freight cost FOB New Jersey - The buyer in NJ pays the freight seller buyer FOB Destination - seller pays the freight cost FOB California - The seller in CA pays the freight

  10. Cash Discounts Discount for prompt payment. Not taken on freight, returned goods, sales tax, & trade discounts. Credit Period Mar. 1 Mar. 31 Time period sellers gives buyers to pay invoices Discount Period Mar. 1 Mar. 10 Time period buyer has to take advantage of cash discount

  11. Table 7.1 - Exact-days-in-a-year calendar

  12. Ordinary Dating Method 2/10, n/30 - “two ten, net thirty” $500 x.02 = $10 $500 - $10 = $490 or $500 x .98 = $490 $500 invoice dated May 3; terms 2/10, n/30; paid on May 10. Discount Period No Discount May 3 May 13 April2 Credit Period

  13. Receipt of Goods (ROG) 1/10, n/30 ROG - Cash discount period begins when the buyer receives the goods $1,000 x.01 = $10 $1,000 - $10 = $990 or $1,000 x .99 = $990 $1,000 invoice dated May 5, received goods June 7; terms 1/10, n/30 ROG; paid on June 17. Discount Period No Discount Invoice Date May 5 June 17 June 7 Aug. 6 Credit Period

  14. End of Month (EOM) 2/10 EOM - Consider the “25th rule” $400 invoice dated Sept. 3; terms 2/10 EOM; paid on October 8. $400 x .02 = $8 $400 - $8 = $392 or $400 x .98 = $392 Discount Period No Discount Invoice Date Sept.3 Oct. 10 Oct 1 Oct. 30 Credit Period

  15. Partial Payment • Sara owes $400. Sara’s terms were 3/10, n/30. Within 10 days Sara sent in a payment of $100. How much is her new balance? 100% - 3% = .97 $100 .97 = $103.09 $400 - $103.09 = $296.91

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