Mathematics of Buying Section 3 Cash Discounts Ordinary

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

Objective Introduce Cash Discounts.

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

Cash Discounts Terms: Home Accessories Wholesalers 2/10 n/30 Sold To: Kitchens Galore Date: 10 -Jun 10100 Fair Oaks Blvd Order No. 796152 Fair Oaks, CA 95628 Shipped by: Terms: Quantity Order No. Description Unit Price 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 UPS 2/10 n/30 Extension Total

Objective Cash Discounts: Ordinary Dating Method

Ordinary Dating Method Most cash discounts are expressed using the Ordinary Dating Method. 2% 0 2/10, n/30 2/10, net 30 net 10 30 Read as: “two ten net thirty” 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

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 Payment occurs after the cutoff point of November 6, therefore no cash discount is earned. November 6

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

Objective Use postdating when calculating cash discounts.

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

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

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

Objective Sliding Scale Cash Discounts

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

Practice Problem n n n Invoice Amount (w/out shipping): $1080 Invoice Date: July 8 July 26 Terms: 5/10, 2/20, n/30 ¨ Date that Invoice is Paid: July 26 26 – 8 = 18 days ¨ Shipping and Insurance: $62. 15 $1080 x 2% $21. 60 Amount of Discount = __________ $1, 080 - $21. 60 + 62. 15 $1, 120. 55 Total Amount Due = _______

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 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. Process (solution method shown) for all problems except multiple choice or fill-in-the-blank ones. Score 5 5 4 3 2 1 0 _____ / 10