Chapter 7 2 Cash Discounts, Credit Terms and Partial Payments. net price equivalent rate

Transcription

1 Chapter 7 2 Cash Discounts, Credit Terms and Partial Payments Review list price chain discount net price equivalent rate single equivalent rate traded discount net price $599 3/1 $199 8/4/3 $269 7/3/1 list price chain discount net price equivalent rate single equivalent rate traded discount net price $599 3/ $23.78 $ $199 8/4/ $28.52 $ $268 7/3/ $28.78 $240.22

2 Definitions: Cash Discount a discount for prompt payment Credit Period the time period that sellers give buyers to pay their invoices Discount Period a cash discount or reduction if buyers pay invoices within a specified time Ordinary Dating Method the buyers cash discount period begins with the invoice date Receipt of Goods (ROG) the cash discount period begins when the buyer receives the goods Freight/Shipping not included in any discounts FOB Shipping Point free on board at shipping point buyer pays the freight costs of getting the gods FOB Destination the seller pays the freight cost until it reaches the buyer s place of business

3 For example: 2/10, n/30 says two ten, net thirty, and it means that the buyer can take a 2% cash discount on the gross amount of the invoice if they pay within 10 days from the invoice date. If buyers miss the discount period, the net amount without a discount is due between day 11 and day 30. Example: $400 invoice dated July 5: terms 2/10, n/30; no freight; paid on July 11. Step #1 Calculate the end of the 2% discount period July 5 date of invoice + 10 days = July 15 (end of 2% discount period) Step #2 calculate the end of the credit period July 5 date of invoice + 30 days = August 4 (end of the credit period) Step #3 Calculate the payment on July 11 (which is during the 2% cash discount period) $400 x.02 (2%) = $8 cash discount $400 $8 = $392 paid

4 2/10, 1/15, n/30 two ten, one fifteen, net thirty The buyer will receive a 2% discount if they pay within 10 days of the invoice date. Between day 11 and day 15 from the date on the invoice they will receive a 1% discount. The net amount is due 30 days from the invoice date. Example: $600 invoice dated May 8; $100 of freight included in the invoice price; paid on May 22. Terms 2/10, 1/15, n/30 Step #1 Calculate the end of the 2% discount period May 8 (date of invoice) + 10 days = May 18 (end of 2% discount period) Step #2 Calculate the end of the 1% discount period May 18 (end of 2% discount period) + 5 days = May 23 (end of 1% discount period) Step #3 Calculate the end of the credit period May 8 (date of invoice) + 30 = June 7 (end of credit period) Step #4 Calculate the payment on May 22 (1% discount date) $600 invoice $100 freight (freight not included in discount) $500 x 1% = 500 x.01 = 5 $500 5 = $495 + $100 freight = $595

5 End of Month (EOM) Different rules for invoices dated before or after the 25th of the month If an invoice is dated before and including the 25th of the month, the discount period begins with the 1st of the next month. If an invoice is dated after the 25th of the month (from the 26th on), the discount period begins with the 1st of the following month. For example: $600 invoice dated July 6; no freight; terms 1/10 EOM; paid on August 8 Step #1 Calculate the end of the 1% discount period August 1 10 Step #2 Calculate the payment of August 8 $600 x.99 = $594 (1% discount is the same as multiplying by 99% or.99) Example #2 $800 invoice dated April 29; no freight; terms 2/10 EOM; payment made on June 18 Step #1 Calculate the end of the 2% discount period June 1 10 (June instead of May)

6 Step #2 Calculate the payment due on June 18 No discount $800 due Partial Payments If a buyer can make only a partial payment during the discount period with the balance due after that, it is calculated as follows: Step #1 Calculate the complement of the discount rate Step #2 Divide the partial payment by the complement of the discount rate this gives the amount credited Step #3 Subtract step 2 from the total owed. This is the outstanding balance Example: Invoice amount of $400 with terms of 2/10, n/30. Within 10 days a payment was made of $80. How much is still due? Step #1 100% 2% = 98% =.98 (complement) Step #2 $80 divided by.98 = $81.63 Step #3 $400 $81.63 (partial payment) = $ (outstanding balance)

7 Try These: #1 Vasco Corp. receives an invoice for equipment with an $8000 list price. The invoice is dated May 26, with terms of 2/10 EOM. Vasco Corp. receives as trade discount of 20%, and pays the invoice on July 3. How much should they pay? #2 An invoice for $600 is received dated September 30 with terms 2/10, 1/15, n/30, and on October 3 $400 was paid. What is the outstanding balance? #1 $8000 x.8 = $6,400 (net price list price with a 20% discount) Discount period ends July 10 $6,400 x.98 = $6,272 (reflects 2% discount) #2 $400 divided by.98 = $ (the partial payment divided by the complement of the discount) $600 $ = $ (remaining balance)

8 Homework pages 198 examples 7 9 through 7 20 Gross invoice Freight Charge Date of Invoice Terms Date of Payment Cash Discount Net Amount Paid $7,000 $100 4/8 2/10, n/60 4/15 $600 none 8/1 3/10, 2/15, n/30 8/13 Gross invoice Freight Charge Date of Invoice Terms $7,000 $100 4/8 2/10, n/60 $600 none 8/1 3/10, 2/15, Date of Payment Cash Discount Net Amount Paid 4/15 $138 $6,862 8/13 $12 $588

9 n/30