Section 3 - Cash Discounts: Ordinary Dating Methods Mathematics of Buying Section 3 - Cash Discounts: Ordinary Dating Methods

Introduce Cash Discounts. Objective Introduce Cash Discounts.

Cash Discounts Cash discounts are offered as a means of encouraging quick payment.

Cash Discounts Terms: 2/10 n/30 Home Accessories Wholesalers Sold To:   Home Accessories Wholesalers Sold To: Kitchens Galore Date: 10-Jun 10100 Fair Oaks Blvd Order No. 796152 Fair Oaks, CA 95628 Shipped by: UPS Terms: 2/10 n/30 Quantity Order No. Description Unit Price Extension Total 6 doz. pastry brush $37.80 doz $226.80 3 gro. napkins, cotton $12.60 gro $37.80 9 doz. cherry pitters $14.04 doz 8 food processors (3 qt.) $106.12 ea 53 pr. stainless tongs $68.12 pr Invoice Total Shipping/Insurance $37.45 Total Amt Due

Cash Discounts: Ordinary Dating Method Objective Cash Discounts: Ordinary Dating Method

Ordinary Dating Method Most cash discounts are expressed using the Ordinary Dating Method. 2% net 10 30 2/10, n/30 Read as: “two ten net thirty” 2/10, net 30 2: 2% discount 10: must pay within 10 days, to earn the discount n: net amount (original invoice total) 30: must pay within 30 days the net amount

Example 1 Determine the cash discount. Invoice Amount: $285 Terms: 3/15, n/30 Payment will be made within 15 days. Discount = $285 x 3% Discount = $285 x .03 Discount = $8.55

Example 2 Determine the cash discount. Invoice Amount: $485 (includes $15 in shipping) Terms: 2/10, n/30 Payment will be made within 10 days. Remove shipping: $485 - $15 = $470 Discount = $470 x 2% Discount = $470 x .02 Discount = $9.40

Determine final discount date, net payment date. Objective Determine final discount date, net payment date.

Number of Days Handout or use page 349 in your textbook.

Determine Final Discount Date and Net Payment Date Invoice Date: March 7 Terms: 2/15, n/30 Final Discount Date (last day to earn the discount) __________ Net Payment Due Date __________ April 6 March 7 + 15 days = March 22 March 7 + 30 days = 66 + 30 = 96 (April 6)

Discount Earned ? Invoice Date: October 17 Terms: 1.5/20, n/30 If payment is made on November 7, is the 1.5% cash discount still “available”? October 17+ 20 days = 290 + 20 = 310 November 6 Payment occurs after the cutoff point of November 6, therefore no cash discount is earned.

Days in Each Month 31 days Jan. Mar. May July Aug. Oct. Dec. Feb.* Apr. June Sept Nov. 30 days * 28 in Feb.

Compute Due Dates 1 of 2 Invoice Date Terms Final Discount Date Net Payment Date May 4 2/10, n/30 April 12 3/10, net/30 May 4 + 10 days May 14 May 4 May 31 June 3 30 days 27 days 3 days

Compute Due Dates 1 of 2 Invoice Date Terms Final Discount Date Net Payment Date May 4 2/10, n/30 May 14 June 3 April 12 3/10, net/30 April 22 April 12 April 30 May 12 30 days 18 days 12 days

Compute Due Dates 2 of 2 Invoice Date Terms Final Discount Date Net Payment Date June 30 3/15, n/60 July 31 2/15, net/20 July 15 June 30 July 31 Aug 29 60 days 31 days 29 days

Compute Due Dates 2 of 2 Invoice Date Terms Final Discount Date Net Payment Date June 30 3/15, n/60 July 31 2/15, net/20 July 15 Aug 29 Aug 15 July 31 Aug 20 Aug 31 20 days

Practice Ch 7, Section 3 Page 283 #5, 6, 9, 10, 12

Use postdating when calculating cash discounts. Objective Use postdating when calculating cash discounts.

Postdating Invoices are sometimes postdated. Date 7/25 AS OF 08/01 Gives the purchaser more time to take advantage of the discount. Date 7/25 AS OF 08/01

Postdating Invoice Date AS OF Terms Final Discount Date Net Payment Date June 30 July 10 3/15, n/60 July 10 + 15 days July 25 July 10 July 31 Aug 31 Sept 8 60 days 21 days 31 days 8 days

Postdating Invoice Date AS OF Terms Final Discount Date Net Payment Date June 30 July 10 3/15, n/60 July 10 + 15 days July 25 July 10 + 60 days = 191 + 60 = 251 September 8

Practice Ch 7, Section 3 Page 283 #3, 4

Sliding Scale Cash Discounts Objective Sliding Scale Cash Discounts

Cash Discounts: Sliding Scales 3% 2% 1% net 10 Day 0 20 30 60

Practice Problem Invoice Amount (w/out shipping): $1080 Invoice Date: July 8 Terms: 5/10, 2/20, n/30 Date that Invoice is Paid: July 26 Shipping and Insurance: $62.15 July 8 July 26 26 – 8 = 18 days Amount of Discount = ____________________ $21.60 $1080 x 2% Total Amount Due = _____________ $1,080 - $21.60 + 62.15 $1,120.55

Practice Ch 7, Section 3 Page 283 #11

Textbook Problems Practice

Practice #18, page 284 List Price of George Foreman Grill: $59.99 Trade Discount: 20/5/10 Terms: 4/10, n/30 What is the net cost to the purchaser assuming trade discount and cash discount are used? Apply Trade Discount: $59.99 x .80 x .95 x .90 = $41.03 Apply Cash Discount: x .96 = $39.39

Practice #19, page 256 An invoice is dated January 18 and offers terms of 6/10, 4/20, 1/30, n/50. Find a) the three final discount dates and b) the net payment date. 6%: January 28 4%: February 7 1%: February 17 Jan. 18 Jan. 31 Feb. 28 Net: March 9 10 13 7 13 17 13 28 9

Practice Ch 7, Section 3 Page 284 #16 – 19

Part II - Practice Test Ch 7 Practice Test (handout) Scoring Criteria for Practice Test: All required problems completed. 5 4 3 2 1 0 Process (solution method shown) for all problems except multiple choice or fill-in-the-blank ones. Score _____ / 10