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Chapter 7Mathematics of Buying

Section 4Cash Discounts:

Other Dating Methods

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Solve Cash Discount Problems with End-of-Month

Dating

End-of-month and proximo datingabbreviated EOM and prox.Number of days counted from end of the month in which invoice is dated3/10 EOM and 3/10 prox. both mean:3% may be taken as cash discount

if paid by 10th of the month that follows the sale

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Solve Cash Discount Problems with End-of-Month

Dating

If invoice date is the 26th or later, add an extra monthExample: 3/10 EOM dated March 25, then last date for discount is April 10Example: 3/10 EOM dated March 26, then last date for discount is May 10

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ExampleIf 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 andThe discount date is April 10 (10 days after the end of March).(b) the net payment dateWhen 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.

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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.

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Example

Discount = 1% of invoice amount= .01 × $717 = $7.17

Amount due = invoice amount – discount

= $717 – $7.17 = $709.83

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Use Receipt-of-Goods Dating to Solve Cash Discount Problems

Receipt-of-goods abbreviated ROGOffers cash discount determined from date on which goods are receivedOften used when shipping time is longInvoice may arrive immediately (Internet)But goods may take weeks to arriveBuyer given time to inspect merchandise

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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 dateFebruary March 2 (20 days after the last discount date).

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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.

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Use Extra Dating to Solve Cash Discount Problems

Extra dating (extra, ex, or x)Buyer has additional time to take advantage of cash discountSupplier during slow season might offer it to generate more sales or gain competitive advantage

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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 dateMay 10 (20 days after the last discount date)

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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.

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Example

Step 1 The last day to take the 2% cash discount is October 1(August 2 + 60 days = October 1). Since the invoice is paid on September 16, the 2% discount may be taken.

Step 2 The 2% cash discount is computed on $7117, the amount of the invoice. The discount to be taken is $142.34.

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Example

Step 3 Subtract the cash discount from the invoice amount to determine the amount of payment.

$7117.00 invoice amount– $142.34 2% cash discount

$6974.66 amount of payment

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Determine Credit Given forPartial 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

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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

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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:

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Example

The amount credited for partial payment is $229.60.

Base = Part

Rate

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Example

(b)Balance due= Invoice amount – Credit

givenBalance due

= $1117 – $229.60 = $887.4(c)Cash discount

= Credit given – Partial paymentCash discount

= $229.60 – $225 = $4.60