cash
Post on 31-Jul-2015
94 Views
Preview:
TRANSCRIPT
McGraw-Hill/Irwin ©2011 The McGraw-Hill Companies, All Rights Reserved
Chapter 7
Discounts: Trade and CashDiscounts: Trade and Cash
7-2
1. Calculate single trade discounts with formulas and complements
2. Explain the freight terms FOB shipping point and FOB destination
3. Find list price when net price and trade discount rate are known
4. Calculate chain discounts with the net price equivalent rate and single equivalent discount rate
Discounts: Trade and Cash#7#7Learning Unit ObjectivesTrade Discounts—Single and Chain (Includes Discussion of Freight)
LU7.1LU7.1
7-3
1. List and explain typical discount periods and credit periods that a business may offer
2. Calculate outstanding balance for partial payments
Discounts: Trade and Cash#7#7Learning Unit ObjectivesCash Discounts, Credit Terms, and Partial Payments
LU7.2LU7.2
7-4
Irwin/ McGraw-Hill Publishing C. Invoice No. 55821333 Burr Ridge ParkwayBurr Ridge, Illinois 60527 Date: July 8, 2010
Ship: Two-day UPSTerms: 2/10, n/30
Sold to: North Shore Community College Bookstore1 Ferncroft RoadDanvers, MA 01923
Description Unit list price Total Amount
50 Financial Management – Block/Hirt $ 95.66 $ 4,783.00 10 Introduction to Business- Nichols $ 89.50 895.00
Total List Price $ 5,678.00 Less: Trade Discount 25% 1,419.50 Net Price $ 4,258.50 Plus: Prepaid Shipping Charge 125.00 Total Invoice Amount $ 4,383.50
Invoice
7-5
Trade Discount Amount & Net Price Formulas
Trade discount amount = List price x Trade discount rate
Net Price = List price - Trade discount amount
$5,678 - 1,419.50 = $4,258.50
$5,678 x 25% = $1,419.50
7-6
Freight Terms
FOB Shipping Point - buyer pays the freight costFOB New Jersey - The buyer in San Diego pays the freight
FOB Destination - seller pays the freight costFOB San Diego - The seller in New Jersey pays the freight
bu
ye
r
seller
7-7
Complement
Complement - The difference between the single discount rate and 100%
If the trade discount is 25%, the complement is 75% (100%-25%)
75%
TradeDiscount
Complement
25%
7-8
Single Trade Discount
The price of a Macintosh Computer is $2,700. The manufacturer offers a 40% trade discount. What are the trade discount amount (TDA) and the net price?
TDA = $2,700 x .40 = $1,080
Net Price = $2,700 - $1,080 = $1,620
Using Complement
$2,700 x .60 = $1,620
7-9
Calculating List Price When Net Price and Trade Discount Rate Are Known
List Price = Net Price .Complement of trade discount rate
Macintosh Computer has a $1,620 net price and a 40% trade discount. What is the list price?
100% - 40% = 60%
$1,620 .60
LP = $2,700
7-10
Chain Discounts
Two or more discounts:
20/15/10 To calculate discount
20 + 15 + 10 = 45%
Find the net price equivalent rate (multiply the complements)
100% 100% 100%
-20 -15 - 10
.80 x .85 x .90 = .612
7-11
Calculating Net Price with a Chain Discount
The price of a office equipment is $15,000. With a chain discount of 20/15/10, what is the net price?
$15,000 $15,000 $12,000 $10,200
x .20 -3,000 - 1,800 - 1,020
$3,000 $12,000 $10,200 $9,180
x .15 x .10
$1,800 $1,020
7-12
Calculating Net Price Using Net Price Equivalent Rate
The price of a office equipment is $15,000. With a chain discount of 20/15/10, what is the net price?
Find the net price equivalent rate (multiply the complements)
.80 x .85 x .90 = .612
$15,000 x .612 = $9,180
Trade Discount Amount
$15,000 - $9,180 = $5,820
7-13
Calculating Trade Discount Amount Using Single Equivalent Discount Rate
The price of a office equipment is $15,000. With a chain discount of 20/15/10, what is the net price?
Find the net price equivalent rate (multiply the complements)
.80 x .85 x .90 = .612
1.00 - .612 = .388
Trade Discount Amount
$15,000 x .388 = $5,820
7-14
Cash Discounts
Credit Period
Time period sellers gives buyers to pay invoices
Mar. 1 Mar. 31
Time period buyer has to take advantage of cash discount
Mar. 1 Mar. 10
Discount Period
Discount for prompt payment. Not taken on freight, returned goods, sales tax, & trade discounts.
7-15
Invoice
New Hampshire Propane Company
Date Description Qty. Price Total
Previous Balance $0.00
6/24/10 PROPANE 3.6 $3.40 $12.24
Total this invoice: $12.24
AMOUNT DUE: $12.24
Prompt Pay Discount: $0.19
Net Amount Due if RECEIVED by 7/10/10: $12.05
Due Date 7/26/10
Invoice No.004433L
Invoice Date6/26/10
7-16
Ordinary Dating Method
2/10, n/30 - “two ten, net thirty”
July 5
July 15
Aug.4
Discount Period10 Days
No DiscountDay 11 - 30
Credit Period (30 days)
$400 invoice dated July 5; terms 2/10, n/30; paid on July 11.
$400 x.02 = $8
$400 - $8 = $392
or
$400 x .98 = $392
7-17
Receipt of Goods (ROG)
3/10, n/30 ROG - Cash discount period beginswhen the buyer receives the goods
May 9
July 8
Aug. 7
Credit Period (30 days)
$900 invoice dated May 9, received goods July 8; terms 3/10, n/30 ROG;
paid on July 20.
Paid 900
Missed discount
period
Invoice Date
July 18
No DiscountDay 11 - 30
Discount Period10 Days
7-18
End of Month (EOM)1/10 EOM - 1% discount, up until the 10th of the following month
July6
Aug. 1
Aug. 30
Credit Period
$600 x .01 = $6
$600 - $6 = $594
or
$600 x .99 = $594
Invoice Date
Aug. 10
$600 invoice dated July 6; terms 1/10 EOM; paid on August 10.
No Discount11th - 30th
Discount Periodends on 10th
7-19
End of Month (EOM)
2/10 EOM - Consider the “25th rule” - Skip a month
April 29
June 1
June 30
Credit Period
Paid $800
Missed discount
period
Invoice Date
June 10
$800 invoice dated April 29; terms 2/10 EOM; paid on June 18.
Discount Periodends on 10th
No Discount10th - 30th
7-20
Partial Payment
• Molly McGrady owes $400. Molly’s terms were 2/10, n/30. Within 10 days Molly sent in a payment of $80. How much is her new balance?
100% - 2% = .98
$400 - $81.63 = $318.37
$80.98 = $81.63
1. Find the complement of discount rate
2. Divide partial payment by the complement (amount credited)
3. Subtract step 2 from the amount owed (outstanding balance)
(1-.02)
top related