Contemporary Mathematics for Business and Consumers Third Edition

Contemporary Mathematics for Business and Consumers Third Edition By: Robert A. Brechner COPYRIGHT © 2003 by South-Western, a division of Thomson Learning. TM is a trademark used herein under license. ALL RIGHTS RESERVED. No part of this work covered by the copyright hereon may be reproduced or used in any form or by any means–graphic, electronic, or mechanical, including photocopying, recording, taping, Web distribution or information storage and retrieval systems–without the written permission of the publisher. For permission to use material from this text or product, contact us by Tel (800) 730 -2214 Fax (800) 730 -2215 http: //www. thomsonrights. com

Chapter 7 Invoices, Trade and Cash Discounts Copyright © 2003 by South-Western

Chapter 7, Invoices, Trade Discounts, and Cash Discounts • Section I: The Invoice 7 -1 Reading and understanding the parts of an invoice. 7 -2 Extending and totaling an invoice. • Section II: Trade Discounts - Single 7 -3 Calculating the amount of a single trade discount. 7 -4 Calculating net price by using the net price factor, complement method. . 7 -5 Calculating trade discount rate when the list price and net price are known.

Chapter 7, Invoices, Trade Discounts, and Cash Discounts (cont. ) Section III: Trade Discounts - Series 7 -6 Calculating net price and trade discount amount by using a series of trade discounts. 7 -7 Calculating the net price of a series of trade discounts by using the net price factor, complement method. 7 -8 Calculating the amount of a trade discount by using a single equivalent discount.

EVERYBODY’S BUSINESS Trade and Cash Discounts, as well as Markup and Markdown (Chapter 8), are particularly important concepts for those seeking careers related to the marketing channels, such as manufacturer’s sales or wholesale or retail buying and merchandising.

7 -2 Extending and Totaling an Invoice Steps to Extend and total an Invoice: Step 1 For each line of the invoice, multiply the number of items by the cost per item. Extended total = Number of items x Cost per item Step 2. Add all extended totals to get the invoice subtotal. Step 3. Calculate the invoice total by adding the shipping charges and insurance to the subtotal and taking into account any other adjustments that may be involved in the transaction. Copyright © 2003 by South-Western

EVERYBODY’S BUSINESS Real World Connection Frequently, merchandise that is ordered from vendors is “out of stock” and goes into back-order status. As a general rule, companies charge only for the merchandise that is shipped.

Section II, Trade Discounts - Single n 7 -3 Calculating the Amount of a Single Trade Discount Trade discount amount = List price x trade discount percent n 7 -4 Calculating Net Price by Using the Net Price Factor, Complement Method Net price = List price – trade discount amount n 7 -5 Calculating Trade Discount Rate When List Price and Net Price are Known Trade discount = Amount of trade discount / List price

EVERYBODY’S BUSINESS Complements are two numbers that add up to 100%. The trade discount percent and the net price factor are complements of each other. This means that if we know on of them, the other can be found by subtracting form 100%.

Section III, Trade Discount - Series n 7 -7 Calculating the Net Price of a Series of Trade Discounts by Using the Net Price Factor, Complement Method – Steps to Calculate Net Price of A Series of Discounts by Using the Net Price Factor: Step 1. Find the complement of the trade discounts in the series by subtracting each form 100% and converting them to decimal form. Step 2. Calculate the net price factor of the series by multiplying all the decimals together. Step 3. Calculate the net price by multiplying the list price by the net price factor. Net price = List price x Net price factor

Section III, Trade Discount - Series n 7 -8 Calculating the Amount of a Trade Discount by Using a Net Single Equivalent Discount Factor – Steps to Calculate Single Equivalent Discount and the Amount of a trade Discount: Step 1. Calculate the net price factor as before, by subtracting each trade discount form 100% and multiplying them all together in decimal form. Step 2. Calculate the single equivalent discount by subtracting the net price factor in decimal form from 1. Single equivalent discount = 1 – Net price factor Step 3. Find the amount of the trade discount by multiplying the list price by the single equivalent discount. Trade discount amount = List price x Single equivalent discount

Chapter 7 Invoice F. O. B. Shipping Point Invoice Subtotal Trade Discount Net Price Single Equivalent Credit Period Net Date Invoice Date Cash Discount Period Partial Payment Credit Ordinary Dating F. O. B. Destination Invoice Total List Price Net Price Factor Terms of Sale Cash Discount Due Date Discount Date Net Amount Partial Payment EOM Dating ROG Dating Extra or X Dating

Chapter 7, (Cont. ) Terms of Sale Net Date, Due Date Invoice Discount Rate Partial Payment Ordinary Dating Proximo, or prox Extra, EX or X Dating Credit Period Cash discount Cash Discount Period Net Amount Partial Payment Credit EOM Dating ROG Dating

Section IV, Cash Discounts and Terms of Sale n 7 -9 Calculating Cash Discounts and Net Amount Due – Steps to Calculate Cash Discount and Net Amount Due: Step 1. Calculate the amount of the cash discount by multiplying the cash discount percent by the net price of the merchandise Cash discount = Net price x Cash discount percent Step 2. Calculate the net amount due by subtracting the amount of the cash from the net price: . Net amount due = Net price = Cash discount Note: As with trade discounts, buyers are frequently more interested in the net amount due than the amount of the discount. When that is the case, we can simplify the calculation by using the complement method to determine the net amount due. Net amount due = Net price (100% - Cash discount percent)

EVERYBODY’S BUSINESS Real Worlds Connection Cash discounts are so important to wholesaler’s and retailer’s “profit picture” that frequently they borrow the money on a short term basis to take advantage of the cash discount savings. This procedure is covered in Chapter 10 “Simple Interest. ”

7 -10 Calculating Net Amount Due, With Credit Given for Partial Payment – Steps to Calculate Partial Payment Credit and Net Amount Due: Step 1. Calculate the amount of credit given for partial payment by dividing the partial payment by the complement of the cash discount percent: Partial payment credit = Partial payment 100% - Cash discount percent Step 2. Calculate the net amount due by subtracting the partial credit from the net price: Net amount due = Net price – Partial payment credit