Brechner6e_Ch07 Invoices, Trade & Cash Discounts

7Contemporary Mathematics FOR BUSINESS AND CONSUMERS Brechner

7CHAPTER

PowerPoint Presentation by Heather Mann

Invoices, TradeDiscounts, and Cash

Discounts 2 0 1 2 C e n g a g e L e a r n i n g . A l l R i g h t s R e s e r v e d . M a y n o t b e s c a n n e d , c o p i e d o r d u p l i c a t e d , o r p o s t e d t oa p u b l i c l y a c c e s s i b l e w e b s i t e , i n w h o l e o r i n p a r t . 1

77

PERFORMANCE OBJECTIVESSection I The Invoice

7-1: Reading and understanding the parts of aninvoice7-2: Extending and totaling an invoice

Section II Trade DiscountsSingle7-3: Calculating the amount of a single tradediscount7-4: Calculating net price by using the net pricefactor, complement method7-5: Calculating trade discount rate when listprice and net price are known

2 2 0 1 2 C e n g a g e L e a r n i n g . A l l R i g h t s R e s e r v e d . M a y n o t b e s c a n n e d , c o p i e d o r d u p l i c a t e d , o r p o s t e d t oa p u b l i c l y a c c e s s i b l e w e b s i t e , i n w h o l e o r i n p a r t .

77

PERFORMANCE OBJECTIVESSection III Trade DiscountsSeries

7-6: Calculating net price and the amount of a tradediscount by using a series of trade discounts7-7: Calculating the net price of a series of tradediscounts by using the net price factor,complement method7-8: Calculating the amount of a trade discount byusing a single equivalent discount

Section IV Cash Discounts and Terms of Sale7-9: Calculating cash discounts and net amount due7-10: Calculating net amount due, with credit givenfor partial payment7-11: Determining discount date and net date byusing various terms of sale dating methods


continued

7The Invoice

4

invoice A document detailing a sales transaction, containing a

list of goods shipped or services rendered, with anaccount of all costs.

freight terminology F.O.B.term used in quoting shipping charges

meaning free on board or freight on board. F.O.B. shipping point

Buyer pays transportation charges from the vendorslocation.

F.O.B. destination Seller pays shipping charges to the buyers store or

warehouse and then bills the buyer for these charges onthe invoice.

2 0 1 2 C e n g a g e L e a r n i n g . A l l R i g h t s R e s e r v e d . M a y n o t b e s c a n n e d , c o p i e d o r d u p l i c a t e d , o r p o s t e d t oa p u b l i c l y a c c e s s i b l e w e b s i t e , i n w h o l e o r i n p a r t .

7 5

EXHIBIT 7-1Typical Invoice Format


7 6

EXHIBIT 7-2Invoice Terminology and Abbreviations


7 7

EXHIBIT 7-3Shipping Terms


7Extending and Totaling anInvoice

8

invoice subtotal The amount of all merchandise or services on

the invoice before adjustments.

invoice total The final amount due from the buyer to the

seller.


7STEPS

9

STEP 1 For each line of the invoice, multiply the number ofitems by the cost per item.

Extended total = Number of items Cost per item

STEP 2 Add all extended totals to get the invoice subtotal.

STEP 3 Calculate the invoice total by adding the freightcharges, insurance, and any other charges to thesubtotal.

TO EXTEND AND TOTAL AN INVOICE


7Extending and Totaling anInvoice

10

From the following invoice, extend eachline to the total column and calculate theinvoice total and subtotal:


Stock # Quantity UnitMerchandiseDescription

UnitPrice Total

R443 125 ea. Food Processor 89.00

B776 24 ea. Microwave oven 225.40

Z133 6 dz. 12 Mixer 54.12Z163 1 bx. Mixer Cover 166.30

Invoice Subtotal

Shipping Charges 194.20

Invoice Total

11,125.00

5,409.60

324.72166.30

17,025.62

17,219.82

7Trade DiscountsSingle

11

trade discount Reductions from the manufacturers list price

given to businesses that are in the trade forperformance of marketing functions.

Trade discount rate List price = Trade discountlist price

Suggested retail selling price of an item, set by themanufacturer or supplier.

The original price from which discounts are taken.


7Trade DiscountsSingle

12

net price The amount a business actually pays for the

merchandise after the discount has beendeducted.

Net price = List price Trade discountnet price factor

The percent of the list price a business pays formerchandise.

It is the multiplier used to calculate the net price.


continued

7STEPS

13

STEP 1 Calculate the net price factor, complement of thetrade discount rate.

Net price factor = 100% Trade discount rate

STEP 2 Calculate the net price.

Net price = List price Net price factor

Note: This procedure can be combined into one step bythe formula

Net price = List price(100% Trade discount rate)

TO CALCULATE NET PRICE BY USING THE NETPRICE FACTOR


7Trade Discount Example

14

Find the amount of the trade discount on anMP3 player that has a list price of $249.95less a trade discount of 20%

Trade discount = List price Trade discount rate

Trade discount = 249.95 .20 = 49.99


7Net PriceComplementMethod Example

15

A beauty salon has ordered for beauty supplies froma wholesaler. The list price of the order is $2,800. Ifthe vendor offers a trade discount of 46%, what isthe net price of the order?

Net price = List price Net price factorNet price factor = 100 46 = 54%

Net price = 2,800 .54 = 1,512

Alternate Method:Net price = 2,800 (100% 46%)

= 2,800(.54)= 1,512


7Trade Discount Rate Example

16

A watch has a list price of $889 and can bebought by the jewelry store for a net price of$545.75. What is the amount of the tradediscount and the trade discount rate?


Trade discount amount = List price Net price

Trade discount rate =Amount of trade discount

List price

Trade discount amount = 889.00 545.74 = 343.25

Trade discountrate =

343.25= .3861 = 38.61%

889.00

7Trade DiscountsSeries

17

chain, or series, trade discount Term used when a vendor offers a buyer more

than one trade discount.

reasons for multiple discounts: Position or level in the channel of distribution Volume buying Advertising and display Competition


7Trade DiscountsSeriesExample

18

Calculate the net price and trade discountamount for merchandise with a list price of$4,000 less trade discounts of 10/15/25.


4,000x .10

400

4,000- 4003,600

3,600x .15

540

3,600- 5403,060

3,060x .25

765

3,060- 7652,295

Trade discount amount = List price Net price

Trade discount amount = 4,000 2,295 = 1,705

7STEPS

19

STEP 1 Find the complement of the trade discount rates inthe series by subtracting each from 100% andconverting them to decimal form.

STEP 2 Calculate the net price factor of the series bymultiplying all the decimals together.

STEP 3 Calculate the net price by multiplying the list priceby the net price factor.

Net price = List price Net price factor

FOR CALCULATING NET PRICE BY USING THENET PRICE FACTOR


7Trade DiscountsSeries Net PriceFactor Example

20

Calculate the net price and trade discountamount for merchandise with a list price of$4,000 less trade discounts of 10/15/25.


90.%90%10%100 85.%85%15%100 75.%75%25%100

57375.75.85.9. 295,25738.000,4

7STEPS

21

STEP 1 Calculate the net price factor as before bysubtracting each trade discount from 100% andmultiplying them all together in decimal form.

STEP 2 Calculate the single equivalent discount bysubtracting the net price factor in decimal formfrom 1.

Single equivalent discount = 1 Net price factor

STEP 3 Find the amount of the trade discount bymultiplying the list price by the single equivalentdiscount.

Trade discount = List price Single equivalent discount

TO CALCULATE THE SINGLE EQUIVALENT DISCOUNTAND THE AMOUNT OF A TRADE DISCOUNT


7Trade DiscountsSeries SingleEquivalent Discount Example

22

Motor City received an order of satellite radioslisting for $9,500 and trade discounts of 25/13/8.Calculate the single equivalent discount and thetrade discount.


75.%75%25%100 87.%87%13%100 92.%92%8%100

6003.92.87.75. 3997.6003.0000.1

15.797,33997.500,9Discount Trade

7Cash Discounts and Terms of Sale

23

terms of sale The details of when an invoice must be paid, and if a

cash discount is being offered.

credit period The time period that the seller allows the buyer to pay

an invoice.

net date, due date The last day of the credit period.

cash discount An extra discount offered by the seller as an incentive

for early payment of an invoice.


7Cash Discounts and Terms of Sale

24

invoice date The date an invoice is written. The beginning of the discount and credit periods when

ordinary dating is used.cash discount period

The time period in which a buyer can take advantageof the cash discount.

discount date The last day of the discount period.

net amount Amount of money due from the buyer to the seller.


continued

7 25

EXHIBIT 7-4Terms of Sale


7 26

EXHIBIT 7-5Terms of Sale Time Line


7STEPS

27

STEP 1 Calculate the amount of the cash discount by multiplying thecash discount rate by the net price of the merchandise.

Cash discount = Net price Cash discount rate

STEP 2 Calculate the net amount due by subtracting the amount of thecash discount from the net price.

Net amount due = Net price Cash discount

Note: As with trade discounts, buyers are frequently more interested inthe net amount due than the amount of the discount. When thatis the case, we can simplify the calculation by using thecomplement method to determine the net amount due.

Net amount due = Net price(100% Cash discount rate)

TO CALCULATE CASH DISCOUNT AND NETAMOUNT DUE


7Cash Discounts and Net AmountDue Example

28

A retailer buys merchandise with an invoice amountof $7,000. The terms of sale are 2/10, n/30. What isthe amount of the cash discount? What is theamount due if the bill is paid by the 10th?


ratediscountCashpriceNetdiscountCash 140.02000,7discountCash

discountCash-priceNetdueamountNet

6,860140-7,000dueamountNet

Alternate Method:Net amount due = 7,000 (100% 2%)

= 7,000 (.98)= 6,860

7Calculating Net Amount Due, withCredit Given for Partial Payment

29

partial payment When a portion of the invoice is paid within the

discount period.

partial payment credit The amount of the invoice paid off by the partial

payment.


7STEPS

30

STEP 1 Calculate the amount of credit given for a partialpayment by dividing the partial payment by thecomplement of the cash discount rate.

STEP 2 Calculate the net amount due by subtracting thepartial payment credit from the net price.

Net amount due = Net price Partial payment credit

TO CALCULATE PARTIAL PAYMENT CREDIT ANDNET AMOUNT DUE


Partial payment credit = Partial payment100% Cash discount rate

7Net Amount Due, with Credit Givenfor Partial Payment Example


Metro Wireless purchased $28,900 in phones onNovember 25 with terms of sale of 4/20, 3/30, n/60.What is the net amount due if Metro Wireless sends apartial payment of $5,000 on December 20?

days2520December to25November appliesdiscount%3

64.154,597.000,5

%3%100000,5

Partialpayment credit

36.745,2364.154,5900,28amountdueNet

7STEPS

32

STEP 1 Find the day number of the starting date.

Note: In leap years, add 1 to the day numbers beginningwith March 1.

STEP 2 Add the number of days of the discount or creditperiod to that day number.

Note: If the new day number is over 365, subtract 365.This means the future date is in the next year.

STEP 3 Find the date by looking up the new day numberfrom Step 2.

TO FINDING A FUTURE DATE USING A DAYS-IN-A-YEAR CALENDAR


7 33

EXHIBIT 7-6Days-In-A-Year Calendar


7Finding the Net Date Example


If an invoice is datedMarch 25 and is duein 85 days, what isthe net date?

March 25 = 84 Due days = 85 Total days =169 Due date = June 18

7Terms of SaleDating Methods

35

ordinary dating When the discount period and credit period start

on the invoice date.end-of-month (EOM or proximo) dating

Depending on invoice date, terms of sale start atthe end of the month of the invoice or the end ofthe following month.

receipt of goods (ROG) dating Terms of sale begin on the date the goods are

received by the buyer.


7Terms of SaleDating Methods


continued

extra, ex, or x dating The buyer receives an extra discount period as an

incentive to purchase slow-moving or out-of-seasonmerchandise.

7Ordinary Dating Example

37

An invoice is dated May 5 with terms of 4/15,n/30. What are the discount date and netdate?


Discount date = May 5 + 15 days = May 20

Net date = May 5 + 30 days= 26 days remaining in May4 days in June

= June 4

Alternate calendar method:May 5 = 125 + 30 = 155 = June 4

7EOM Dating Example


EOM Dating: For invoices dated between the 1st of the month and

the 25th, terms begin the beginning of the followingmonth. For invoices dated after the 25th, skip amonth and the terms begin the beginning of thefollowing month.

Example: An invoice is dated August 29 with terms of4/15 EOM. What are the discount date and the netdate?

After the 25th of the month, terms of sale begin afterthe end of the following month.

Discount date = October 15 Net date = October 15 + 20 days = November 4

7ROG Dating Example


An invoice dated January 15 has terms of 3/20ROG. The goods are delayed in shipment andarrive March 2. What are the discount date andthe net date?

Discount date = March 2 + 20 = March 22 Net date = March 22 + 20 days = April 11

7Extra Dating Example


What are the discount date and the net datefor an invoice dated November 6, with terms4/15, 30 extra?

Discount date = November 6 + 15 days + 30 days = December 21

Net date = December 21 + 20 = December 21 = 355 + 20 days = 375 365 = January 10

7CHAPTER REVIEW PROBLEM 1

41

Solve the following word problem: Lawn and Garden buys lawnmowers that list for

$889.95 less a 30% trade discount. What are theamount of the trade discount and the net price ofeach lawnmower?


Trade discount = 889.95 .30 = 266.99

Net price = 889.95 266.99 = $622.96


42

Solve the following word problem: If Warner Co. sends a $1,350 partial payment for

an invoice of $4,609.29 with terms of 3/10, n/30,by the discount date, what is the balance due onthe invoice?


75.391,197.350,1

%3%100350,1

Partialpayment credit

54.217,375.391,129.609,4amountdueNet


43

What is the net price factor for tradediscounts of 25/15/10?


75.%75%25%100

85.%85%15%100

90.%90%10%100

57375.90.85.75.


44

What is the single equivalent discount forthis trade discount series: 20/15/11?


80.%80%20%100

85.%85%15%100

89.%89%11%100 6052.89.85.80.

3948.6052.0000.1


45

Solve the following word problem: A firm orders merchandise on May 4. Terms of

sale are 2/10, n/30 EOM. What are the discountdate and the net date?


Date is between the 1st and the 25th.

Discount date: June 10

Net date: June 10 + 20 days = June 30

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