1. Trade and Cash Discounts
CHAPTER 8
Trade and Cash Discounts

2. 8-1
Learning Outcomes
Find the trade discount using a single trade discount rate, and the net price using the trade discount.
Find the net price using the complement of the single trade discount rate.

3. Suggested retail price, catalog price, list price.
Key Terms…
Section 8-1
Single Trade Discounts
Suggested retail price, catalog price, list price.
Three common terms for the price at which the manufacturer suggests an item be sold to the consumer.
Trade discount
The amount of discount that the wholesaler or retailer receives off the list price, or the difference between the list price and the net price.

4. Net price Discount rate Key Terms…
Section 8-1
Single Trade Discounts
Net price
The price the manufacturer or retailer pays, or the list price minus the trade discount.
Discount rate
A percent of the list price.

5. Portion (part) = rate (percent) *base (whole)
Find trade discount using a single trade discount rate; find net price using the trade discount
8-1-1
Section 8-1
Single Trade Discounts
List prices and discounts apply the percentage formula.
The portion is the trade discount T.
The rate is the single trade discount rate R.
The base is the list price L.
T =RL P =RB
Portion (part) = rate (percent) *base (whole)

6. Trade discount = rate x list price
Find trade discount using a single trade discount rate
HOW TO:
Section 8-1
Single Trade Discounts
Identify the single discount rate and the list price.
Multiply the list price by the single discount rate.
Trade discount = rate x list price

7. Trade discount = rate x list price
An Example…
Section 8-1
Single Trade Discounts
Identify the single discount rate and the list price.
Multiply the list price by the single discount rate.
Trade discount = rate x list price
Find the trade discount for a cd player that retails at $120 and has a trade discount rate of 35%.
Trade discount = 0.35 x $120
Trade discount = $42
What does the $42 mean?
That the wholesaler or retailer will not pay $42 of the $120 list price.

8. Examples…
Section 8-1
Single Trade Discounts
Find the trade discount for a rug that lists for $290 and has a trade discount of 30%.
$87
Find the trade discount for styling gel that lists for $18 and has a trade discount of 15%.
$2.70

9. EXERCISE SET A
Practice Question 1. Find the trade discount. Round to the nearest cent. Item List price Single discount Trade rate discount Mountain bike $ % ??? Trade discount = $149.50(20%) = $149.50(0.2) = $29.90

10. Trade discount = Rate x List Price
HOW TO:
Use the trade discount
Section 8-1
Single Trade Discounts
Identify the list price and the trade discount.
Subtract the trade discount from the list price.
Trade discount = Rate x List Price
Net Price = List Price – Trade discount

11. Trade discount = Rate x List Price
An Example…
Section 8-1
Single Trade Discounts
Identify the list price and the trade discount.
Subtract the trade discount from the list price.
Trade discount = Rate x List Price
Net Price = List Price – Trade discount
Find the net price of a desk that lists for $320 and has a trade discount of 30%.
Trade discount = 0.30 x $320 = $96
Net price = List price – Trade discount
Net price = $320 – $96 = $224
MORE

12. Find the net price using the complement of the single discount rate
8-1-2
Section 8-1
Single Trade Discounts
Another method for calculating the net price uses the complement of a percent.
The complement of a percent is the difference between 100% and the given percent.
The complement of the single trade discount rate can be used to find the net price.

13. Subtract the single trade discount from 100%.
Find the net price using the complement of the single discount rate
HOW TO:
Section 8-1
Single Trade Discounts
Subtract the single trade discount from 100%.
Multiply the list price by the complement of the single trade discount.
Examples:
Find the net price of a coffee maker that lists for $20 and has a trade discount rate of 20%.
80% is the complement of 20%
NP = $20 x 0.80 = $16

14. Complement of percent Examples: Key Terms…
Section 8-1
Single Trade Discounts
Complement of percent
The difference between 100% and the given percent.
The complement of 30% is 70%.
The complement of 55% is 45%
The complement of 5% is 95%.
Examples:

15. Examples
Section 8-1
Single Trade Discounts
Find the net price of a set of golf clubs that lists for $1,500 and has a trade discount of 15%.
$1275
Find the net price of a bicycle that lists for $102 and has a trade discount of 30%.
$71.40

16. EXERCISE SET A
Practice Question 2. Find the net price. Round to the nearest cent. Item List price Trade discount Net price Home gym $279 $49 ??? $279  $49 = $230

17. EXERCISE SET A
Practice Question 3. Find the trade discount and net price. Round to the nearest cent. Trade discount = $25(5%) = $25(0.05) = $1.25 Net price = $25  $1.25 = $23.75
Item
List Price
Single discount
rate
Trade
discount
Net price
Spalding golf club
$25 5% ??

18. EXERCISE SET A
Practice Question 4. Find the trade discount and net price. Round to the nearest cent. Trade discount = $100(17%) = $100(0.17) = $17.00 Net price = $100  $17 = $83.00
Item
List Price
Single discount
rate
Trade
discount
Net price
Jeep radio
$100
17% ??

19. EXERCISE SET A
Practice Question 5. Find the complement of the single trade discount rate and net price. Round the net price to the nearest cent. Complement = 100% - 6% = 94% Net price = $399.98(0.94) = $375.98
Item
List Price
Single discount
rate
Net price rate
Net price
MP3 player
$399.98 6% ??

20. 8-2
Learning Outcomes
Find the net price applying a trade discount series and using the net decimal equivalent.
Find the trade discount applying a trade discount series and using the single discount equivalent.

21. Reasons to use discount series include:
Key Terms…
Section 8-2
Trade Discount Series
Trade discount series or chain discount
Additional discounts that are deducted one after another from the list price.
Reasons to use discount series include:
To encourage volume purchases
To promote special or seasonal items
To entice a new client

22. Complements are used to find net prices directly.
Find the net price applying a trade discount series and using the net decimal equivalent
8-2-1
Section 8-2
Trade Discount Series
One way to calculate the net price is to make a series of calculations.
$400(0.2) = $80 $400 - $80 = $320 The first discount is taken on the list price of $400, which leaves $320.
$320(0.1) = $32 $320 - $32 = $288 The second discount is taken on $320, which leaves $288.
$288(0.05) = $14.40 $288 - $14.40 = $ The third discount is taken on $288, which leaves the net price of $
Complements are used to find net prices directly.
A faster method.

23. Trade discount series step by step
Find the net price applying a trade discount series and using the net decimal equivalent
HOW TO:
Section 8-2
Trade Discount Series
An item lists for $400 and has a discount of 20%.
$400 x 0.2 = $80; $400 - $80 = $320
Trade discount series step by step
An additional discount of 10% is taken on the previous price.
$320 x 0.1 = $32; $320 - $32 = $288
An additional discount of 5% is taken on the previous price.
$288 x 0.05 = $14.40; $288 - $14.40 = $273.60
$ is the final price.

24. Each time you apply the additional discount, the base becomes smaller.
Can you add the discounts together and apply it as one?
Section 8-2
Trade Discount Series
If the item has three discounts of 20%, 10% and 5%, can you add them together and apply a 35% discount?
No!
Each time you apply the additional discount, the base becomes smaller.
Directly applying a 35% discount would result in a final price of $260.
$260 ≠ $273.60

25. Multiply the list price by the net decimal equivalent.
HOW TO:
Find the net decimal equivalent
Section 8-2
Trade Discount Series
Multiply the decimal form of the complement of each trade discount rate in a series.
Multiply the list price by the net decimal equivalent.

26. Find the complement of each of the trade discount rates.
An Example…
Section 8-2
Trade Discount Series
Find the net price of an order with a list price of $800 and a trade discount series of 20/10/5.
Find the complement of each of the trade discount rates.
They are 0.80, 0.90 and Multiply them together.
The net decimal equivalent is
Apply the net decimal equivalent to the list price.
NP = x $800 = $547.20

27. Examples…
Section 8-2
Trade Discount Series
A tool set lists for $325 and has a trade discount series of 20/10/10. Find the net price.
$210.60
A dress shirt lists for $125 and has a trade discount series of 15/10/7.5. Find the net price.
$88.45

28. Multiply the list price by the single discount equivalent.
HOW TO:
Use the trade discount
Section 8-1
Single Trade Discounts
Find the single discount equivalent by subtracting the net decimal equivalent from 1.
Multiply the list price by the single discount equivalent.
TD = single discount equivalent x list price
Use the single discount equivalent to calculate the trade discount on a $3,200 lawn tractor with a discount series of 30/20/10.

29. An Example…
Section 8-2
Trade Discount Series
Find the net decimal equivalent by multiplying the complements of each discount rate.
0.70 x 0.80 x 0.90 = 0.504
Subtract the net decimal equivalent (0.504) from “1” to find the single discount equivalent.
The result is (or 49.6%).
The single discount equivalent is 0.496; apply it to the price of $3,200.
TD = $3,200 x = $1,587.20
The trade discount on the tractor is $1, That is the amount that you do not pay.
Use the single discount equivalent to calculate the trade discount on a $3,200 lawn tractor with a discount series of 30/20/10.

30. Single discount equivalent
Key Terms…
Section 8-2
Trade Discount Series
Single discount equivalent
The complement of the net decimal equivalent.
It is the decimal equivalent of a single discount rate that is equal to the series of discount rates.
Total amount of a series of discounts
Single discount equivalent x list price.
Net amount you pay
Net decimal equivalent x list price.

31. Decimal equivalents of complements Net decimal equivalent
EXERCISE SET A
Practice Question 6. Find the decimal equivalents of complements, net decimal equivalent, and net price. Round the net price to the nearest cent. Decimal equivalents of complements = 0.8 and 0.9; net decimal equivalent = 0.8(0.9) = 0.72 net price = 0.72($200) = $144
Item
List Price
Trade disc. series
Decimal equivalents of complements
Net decimal equivalent
Net
price
sunglasses
$200
20/10

32. Decimal equivalents of complements Net decimal equivalent
EXERCISE SET A
Practice Question 7. Find the decimal equivalents of complements, net decimal equivalent, and net price. Round the net price to the nearest cent. Decimal equivalents of complements = 0.85 and 0.95 net decimal equivalent = 0.85(0.95) = net price = ($99.99) = $80.74
Item
List Price
Trade disc. series
Decimal equivalents of complements
Net decimal equivalent
Net
price
Wii
$99.99
15/5

33. EXERCISE SET A
Practice Question 8. Round to the nearest hundredth of a percent when necessary. % form = (100%) = 68.35% Single discount equivalent = 100% % = 31.65%
Net decimal equivalent
Net decimal equivalent in percent form
Single discount equivalent in percent form
0.6835

34. EXERCISE SET A
Practice Question 9. Find the single discount equivalent in percent form for the discount series 20/ (0.9) = 0.72 = 72% net decimal equivalent in percent form 100%  72% = 28% single discount equivalent

35. EXERCISE SET A
Practice Question 10. Find the single discount equivalent in percent form for the discount series 10/5. 0.9(0.95) = = 85.5% net decimal equivalent in percent form 100%  85.5% = 14.5% single discount equivalent

36. EXERCISE SET A
Practice Question 11. Find the trade discount on a suit listed for $165 less 12%. $165(0.12) = $19.80

37. EXERCISE SET A
Practice Question 12. The list price on slacks is $22, and the list price on jumpers is $37. If Petit’s Clothing Store orders 30 pairs of slacks and 40 jumpers at a discount rate of 11%, what is the trade discount on the purchase? 30($22) = $660 slacks; 40($37) = $1,480 jumpers $660 + $1,480 = $2,140 total list price $2,140(0.11) = $ trade discount

38. EXERCISE SET A
Practice Question 13. A trade discount series of 10/5/5 is offered on a printer, which is listed at $800. Also, a trade discount series of 5/10/5 is offered on a desk chair listed at $250. Find the total net price for the printer and the chair. Round to the nearest cent. 0.9(0.95)(0.95) = net decimal equivalent $800( ) = $ net price of printer 0.95(0.9)(0.95) = net decimal equivalent $250( ) = $ net price of desk chair $ $ = $ total net price

39. Find the cash discount and the net amount using ordinary dating terms.
8-3
Learning Outcomes
Find the cash discount and the net amount using ordinary dating terms.
Interpret and apply EOM and ROG terms.
Find the amount credited and outstanding balance from partial payments.
Interpret freight terms.

40. Bills are often due within thirty days from the date of the invoice.
Find the cash discount and the net amount using ordinary dating terms
8-3-1
Section 8-3
Cash Discounts and Sales Terms
Bills are often due within thirty days from the date of the invoice.
To encourage prompt payment, companies offer an incentive of a cash discount if the invoice is paid within a specified period.
2/10 n/30 means “take a 2% cash discount if paid within 10 days; pay the net price if paid within 30 days”.

41. HOW TO: Find the cash discount
Section 8-3
Cash Discounts and Sales Terms
Find the cash discount for an invoice dated December 1 for $1,500 with terms of 2/10 n/30.
If the invoice is paid on December 9th, for example, the payment would include the discount and the amount would be $1,470.
If the invoice is paid on or after December 11th, the amount to pay would be $1,500.

42. What if the bill is paid on November 30?
Examples…
Section 8-3
Cash Discounts and Sales Terms
Annie’s Plants has received an invoice for $450 for potting soil dated November 3 with terms of 5/10 n/30. If the invoice is paid on November 12, how much would Annie’s pay?
$427.50
What if the bill is paid on November 30?
They would not be able to take the discount and would have to pay the full amount of $450.

43. HOW TO:
Find the cash discount
Section 8-3
Cash Discounts and Sales Terms
To calculate the exact number of days for a cash discount, you must know how many days are in each month, so if you are not sure…learn them.
Using a chart is usually the most reliable.

44. $500 x 0.98 = $490 = net amount to be paid
HOW TO:
Find the cash discount
Section 8-3
Cash Discounts and Sales Terms
An invoice of $500 which reads 2/10 n/30 tells you that a discount of 2% is available if the payment is made within 10 days.
To calculate the net amount directly, use the complement of the discount (in this case, 0.98) and multiply it by the total amount.
$500 x 0.98 = $490 = net amount to be paid

45. An Example…
Section 8-3
Cash Discounts and Sales Terms
Sycamore Enterprises received a $1,248 bill for computer supplies dated September 2, with sales terms of 2/10, 1/15, n/30. A 5% penalty is charged after 30 days.
Find the amount due for the following dates: September 12, September 15, October 1, October 3.
September 12 (2% discount) = $1,223.04
September 15 (1% discount) = $1,235.52
October 1 (no discount) = $1,248.00
October 3 (5% penalty) = $1,310.40

46. Interpret and apply EOM (End-of-Month) Terms
8-3-2
Section 8-3
Cash Discounts and Sales Terms
An invoice might be 2/10 EOM—meaning a 2% discount is allowed if the bill is paid during the first month or up until 10 days of the month after the month on the date of the invoice.
If the invoice is dated November 19, then the 2% discount is allowed up to and including December 10.

47. An invoice dated March 4, with terms of 3/15 EOM.
Examples…
Section 8-3
Cash Discounts and Sales Terms
An invoice dated March 4, with terms of 3/15 EOM.
A 3% discount would be applicable until April 15.
An August 25 invoice with terms of 5/10 EOM.
A 5% discount would apply until September 10.
December 2 with terms of 2/20 EOM.
2% discount until January 20.

48. EOM (End-of-Month) terms
Section 8-3
Cash Discounts and Sales Terms
An exception occurs when the invoice is dated on or after the 26th of the month.
The discount would be applicable until the specified day of the month following the month of the invoice.
An invoice dated April 27 with terms of 3/10 EOM would be eligible for the discount if the bill is paid on or before June 10.

49. Multiply the invoice amount times the complement of the discount rate.
Interpret and apply ROG (Receipt-of-Goods) Terms
8-3-3
Section 8-3
Cash Discounts and Sales Terms
A cash discount is allowed when the bill is paid within the specified number of days from the receipt of goods.
Not from the date of the invoice.
Sales terms stating 1/10 ROG means that a 1% discount is applicable 10 days after the goods are received,
Not when the invoice is dated.
Multiply the invoice amount times the complement of the discount rate.

50. An Example…
Section 8-3
Cash Discounts and Sales Terms
Judy’s Fine Jewelry received an invoice for 50 silver charm bracelets for a total of $550. The invoice is dated April 1. She received the bracelets on April 6. If the terms are 3/10 ROG and the invoice is paid on April 11, how much will she pay?
$533.50

51. Find the amount credited and the outstanding balance from partial payments
8-3-4
Section 8-3
Cash Discounts and Sales Terms
A company sometimes cannot pay the full amount due in time to take advantage of a cash discount.
Most sellers allow buyers to make a partial payment and still get a partial cash discount.

52. Section 8-3
Cash Discounts and Sales Terms
In applying the percentage formula to find the amount credited:
The rate is the complement of the discount rate.
The percentage is the partial payment.
The amount credited is the base.
B = P/R

53. Partial payment Partial discount Amount credited Outstanding balance
Key Terms…
Section 8-3
Cash Discounts and Sales Terms
Partial payment
A payment that does not equal the full amount of the invoice less any cash discount.
Partial discount
A cash discount applied only to the amount of the partial payment.
Amount credited
The sum of the partial payment and the partial discount.
Outstanding balance
The invoice amount minus the amount credited.

54. B = 500/0.97= $515.46 = amount credited
An Example…
Section 8-3
Cash Discounts and Sales Terms
If the Semmes Corporation received a $875 invoice with terms of 3/10 n/30 and could not pay the full amount within 10 days, but chose to send in a $500 partial payment on Day 5, what amount was credited to their account?
B (amount credited) = P (partial payment) divided by R (complement of the discount rate)
B = 500/0.97= $ = amount credited
The balance would be the difference.
$875 - $ = $ = balance

55. 8-3-5
Interpret freight terms
Section 8-3
Cash Discounts and Sales Terms
Manufacturers rely on a wide variety of carriers (truck, rail, ship, plane, etc.)
Terms of freight shipment are indicated on a bill of lading
Freight payment terms are usually specified on the manufacturer’s price list.

56. FOB (Free On Board ) shipping point Freight collect
Key Terms…
Section 8-3
Cash Discounts and Sales Terms
Bill of lading
A shipping document that includes a description of the merchandise, the number of pieces, weight, name of the consignee (sender), destination, and method of payment of freight charges.
FOB (Free On Board ) shipping point
Buyer pays for shipping when shipment is received.
Freight collect
The buyer pays the shipping when the shipment is received.

57. FOB destination: Freight paid Prepay and add Key Terms…
Section 8-3
Cash Discounts and Sales Terms
FOB destination:
The seller pays the shipping when the merchandise is shipped.
Freight paid
Prepay and add
The seller pays the shipping when the merchandise is shipped; but, the shipping costs are added to the invoice for the buyer to pay.

58. Subtract the shipping charges: $800 – 125 = $675
An Example…
Section 8-3
Cash Discounts and Sales Terms
The Home Doctor received a shipment of hand tools with an invoice total of $800 (including shipping) and sales terms of 3/10 n/30. The invoice is dated June 2 and the shipping costs are $125. Calculate the payment of the invoice if it is paid on June 10.
Remember that cash discounts do not apply to shipping costs!
Subtract the shipping charges: $800 – 125 = $675
Apply the discount: $675 x 0.97 = $654.75
Add the shipping charges back in:
$ = $ = amount to be paid

59. EXERCISE SET A
Practice Question 14. Beverly Vance received a bill dated March 1 with sales terms of 3/10, n/30. What percent discount will she receive if she pays the bill on March 5? 3% discount Practice Question 15. Christy Hunsucker received an invoice for $650 dated January 26. The sales terms in the invoice were 2/10 EOM. She paid the bill on March 4. How much did Christy pay? $650(0.98) = $637

60. Balance paid on July 12 = 1,200  $824.74 = 375.26
EXERCISE SET A
Practice Question 16. An invoice for $1,200 is dated on June 3, and terms of 3/10, n/30 are offered. A payment of $800 is made on June 12, and the remainder is paid on July 12. Find the amount remitted on July 12 and the total amount paid.
Balance paid on July 12 = 1,200  $ =
Total paid = $800 + $ = $1,175.26

61. Practice Test

62. 250  50 = $200 net price better price 240(0.1) = $24 discount
PRACTICE TEST
2. The list price of a television is $560. The trade discount is $ What is the net price?
$560  $27.50 = $ net price
4. One distributor lists a chair for $250 less 20%. Another distributor lists the same chair at $240 less 10%. Which distributor offers the better deal?
250(0.2) = $50 discount
250  50 = $200 net price better price
240(0.1) = $24 discount
240  24 = $216 net price

63. Net decimal equivalent: 0.8(0.8)(0.9) = 0.576
PRACTICE TEST
6. Find the single discount equivalent for the discount series 20/20/10.
Net decimal equivalent: 0.8(0.8)(0.9) = 0.576
Single discount equivalent: 100%  57.6% = 42.4%
8. What is the complement of 15%?
100%  15% = 85%

64. 3% discount if she pays on or before September 11.
PRACTICE TEST
10. A retailer buys 30 electric frying pans listed at $40 each for 10% less than the list price. How much does the retailer have to pay for the frying pans?
30($40) = $1,200 total list price
$1,200(0.1) = $120 discount
$1,200  $120 = $1,080 net price
12.Shareesh Raz received a bill dated September 1 with sales terms of 3/10, 1/15, n/30. What percent discount will she receive if she pays the bill on September 6?
3% discount if she pays on or before September 11.

65. 2% discount if paid on or before May 10 Discount = $300(0.02) = $6.00
PRACTICE TEST
14. Gladys Quaweay received a bill for $300 dated April 7. The sales terms on the invoice were 2/10 EOM. If she paid the bill on May 2, how much did she pay?
2% discount if paid on or before May 10
Discount = $300(0.02) = $6.00
Net amount = $300  $6 = $294.00

66. Zing: $30(0.9)(0.9) = $24.30 net price
PRACTICE TEST
16. Zing Manufacturing lists artificial flower arrangements at $30 less 10% and 10%. Another manufacturer lists the same flower arrangements at $31 less 10%, 10%, and 5%. Which is the better deal?
Zing: $30(0.9)(0.9) = $24.30 net price
Other: $31(0.9)(0.9)(0.95) = $23.85 net price better deal

67. $745  $306.12 = $438.88 outstanding balance
PRACTICE TEST
18. Campbell Sales purchased merchandise worth $745 and made a partial payment of $300 on day 13. If the sales terms were 2/15, n/30, how much was credited to the account? What was the outstanding balance?
$745  $ = $ outstanding balance

68. PRACTICE TEST
20. The monogrammed items purchased by Dean Specialty Company are shipped by rail from the manufacturer. The bill of lading is marked “FOB destination.” Who is responsible for paying freight expenses?
Manufacturer