Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 1 Chapter 7 Mathematics of Buying Section 4 Cash Discounts: Other Dating Methods

Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 2 Solve Cash Discount Problems with End-of-Month Dating End-of-month and proximo dating abbreviated EOM and prox. Number of days counted from end of the month in which invoice is dated 3/10 EOM and 3/10 prox. both mean: 3% may be taken as cash discount if paid by 10 th of the month that follows the sale

Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 3 Solve Cash Discount Problems with End-of-Month Dating If invoice date is the 26 th or later, add an extra month Example: 3/10 EOM dated March 25, then last date for discount is April 10 Example: 3/10 EOM dated March 26, then last date for discount is May 10

Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 4 Example If an invoice from Dell is dated March 11 with terms of 3/10 EOM, find (a)the final date on which the cash discount may be taken and The discount date is April 10 (10 days after the end of March). (b)the net payment date When no net payment due date is given, common business practice is to allow 20 days after the last discount date. The net payment date is April 30, which is 20 days after the last discount date (April 10), since no net payment date is given.

Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 5 Example Find the amount due on an invoice of $717 for some Revlon curling irons dated January 17, if terms are 1/10 prox. and the invoice is paid on January 19. Last date for discount is January 27(10 days after the end of January). January 19 is within the discount period, so the discount is earned.

Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 6 Example Discount = 1% of invoice amount =.01 × $717 = $7.17 Amount due = invoice amount – discount = $717 – $7.17 = $709.83

Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 7 Use Receipt-of-Goods Dating to Solve Cash Discount Problems Receipt-of-goods abbreviated ROG Offers cash discount determined from date on which goods are received Often used when shipping time is long Invoice may arrive immediately (Internet) But goods may take weeks to arrive Buyer given time to inspect merchandise

Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 8 Example Pet Smart received an invoice dated January 19, with terms of 3/15 ROG. The goods were received on January 26. Find (a)the final date on which the cash discount may be taken The discount date is February 10 (15 days after receipt of goods, January 19 plus 15 days). (b)the net payment date February March 2 (20 days after the last discount date).

Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 9 Example Find the amount due to Shopko on an invoice of $311 for some printing services, with terms of 2/10 ROG, if the invoice is dated June 19, the goods are received June 30, and the invoice is paid July 17. The last date to take the 3% cash discount is July 10, 10 days after June 30. Invoice is paid on July 17, 7 days after the last discount date, no cash discount may be taken. The entire amount of the invoice must be paid. The amount due is $311.

Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 10 Use Extra Dating to Solve Cash Discount Problems Extra dating (extra, ex, or x) Buyer has additional time to take advantage of cash discount Supplier during slow season might offer it to generate more sales or gain competitive advantage

Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 11 Example An invoice for Top Paw Pet Carriers is dated March 11 with terms of 3/10–40 ex. Find (a)the final date on which the cash discount may be taken Discount date is April 20 (20 days remaining in March + 20 days in April = 40). (b)the net payment date May 10 (20 days after the last discount date)

Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 12 Example An invoice from Top Paw., is dated August 2, amounts to $7117, offers terms of 2/10–50 x, and is paid on September 16. Find the net payment.

Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 13 Example Step 1The last day to take the 2% cash discount is October 1(August days = October 1). Since the invoice is paid on September 16, the 2% discount may be taken. Step 2The 2% cash discount is computed on $7117, the amount of the invoice. The discount to be taken is $

Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 14 Example Step 3 Subtract the cash discount from the invoice amount to determine the amount of payment. $ invoice amount – $ % cash discount $ amount of payment

Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 15 Determine Credit Given for Partial Payment of an Invoice Occasionally, a customer may pay only a portion of the total amount due on an invoice If this partial payment is made within a discount period, the customer is entitled to a discount on the portion of the invoice that is paid

Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 16 Jones Bros Cupcakes receives an invoice for $1117 for new oven dated March 6 that offers terms of 2/10 prox. A partial payment of $225 is made on March 19. Find (a)the amount credited for the partial payment, (b) the balance due on the invoice, and (c) the cash discount earned. Example

Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 17 Example (a)The cash discount is earned on the $225 partial payment made on March 19(April 10 was the last discount date). The amount paid ($225) is part of the base (amount for which credit is given) 100% – 2% = 98% The rate 98% is used to solve for base using the formula:

Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 18 Example The amount credited for partial payment is $

Copyright © 2015, 2011, and 2007 Pearson Education, Inc. 19 Example (b)Balance due = Invoice amount – Credit given Balance due = $1117 – $ = $887.4 (c)Cash discount = Credit given – Partial payment Cash discount = $ – $225 = $4.60