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Calculating Net Cost after Cash Discounts

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  1. Cash Discounts ~ Ordinary Dating Methods Section 7.3

  2. Calculating Net Cost after discounts: • Cash Discounts: offered by seller to encourage prompt payment • Net = List – Trade – Cash Cost Price Discount Discount

  3. The Ordinary Dating Method • Notation: 2/10, n/30 or 2/10, net 30 • Means: 2% discount if paid in 10 days, the total is due in 30 days. • AFTER 10 days, 2% discount does not apply! • AFTER 30 days, payment is overdue and late charges may be added!

  4. To determine if a cash discount is earned: • Check the date on the invoice and consider the # of days the discount is in play. • You must know how many days are in each month. (See p 250)

  5. Examples: • An invoice dated June 8 offers terms of 3/15, net 30. Find (A) the last date on which the 3% discount can be taken and (B) the net payment date. • An invoice is received for $2830.15, dated March 21, and offers 3/15, n/30. If the invoice is paid on April 4 and the shipping & insurance charges are 124.96, find the amount due.

  6. Postdating & Cash Discounts • Invoices may be postdated to offer more time for the discount. • i.e. 07/25 AS OF 08/01 • Means: invoice was dated July 25, but the discount and net payment date are calculated as of Aug 1.

  7. An invoice for Waterford Crystal is dates Aug 24 AS OF Sept 1 with terms of 1/10, n/30. Find (A) the last date on which the cash discount may be taken and (B) the net payment date. • An invoice is dated April 14 and offers terms of 3/10, 2/30, 1/40, n/60. Find (A) the 3 final dates of each discount and (B) the net payment date.

  8. IF no “Net payment period is given… • Then the net payment is due 20 days after the last discount date.

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