USING YOUR UNDERSTANDING OF

DISCOUNTS

2/10, N/30

Dating Terms

Dating Terminology

Invoice: lists the quantities and costs of the items purchased.

Discount Incentive: To encourage prompt payment, the supplier may offer a cash discount if the bill is paid within a certain number of days.

Many suppliers use ordinary dating. The exact terms of the discount are stated

on the invoice When the discount period and the credit

period start on the date of the invoice

2/10, net 30 2/10, n/30

What does this all mean?

2% cash discount if paid within 10 days of date of invoice.

Net price must be paid within 30 days of date of invoice

Review of Formulas from Discounts

Cash Discounts = Net Price * (100%-Discount Rate)

100% - discount rate = paid rate

Example

Terms are 3/10, n/30. Net price is $640.

What is the discount rate in this problem?3%

What is the paid percent of 3%?100-3 = 97%

What is the cash price?640 * .97 = 620.80

2/10, n/30 ROG

ROG: Receipt of Goods2/10, n/30 ROG means that the discount period starts with the receipt of the goods

Example

The net price of goods from Fashion Footwear, to the Mall Shoe Store is $4217.86. If the invoice is paid on December 11, what is the cash price?

On an invoice you may find the following information.Invoice Date: 12/05/09Received Date: 12/05/09Terms 8/10, n/30

Answer to Example

What is the discount rate? 8%

When is the last day to take advantage of the discount? December 15

Do they make the discount period? Yes

What is the cash price? 4217.86 * .92 = 3880.43

EOM Dating Terms

EOM: End of MonthDiscount period begins AFTER the end of the month

6/15 EOMA 6% cash discount if an invoice is paid

within 15 days AFTER the end of the month in which the invoice is issued.

Example

Bob’s Drugstore received an invoice from General Wholesalers. What is the last day that Bob’s can take advantage of the 4% discount? What is the cash price?

Date: July 12 Terms: 4/10 EOM Total on Invoice: $727.05Invoice was paid on August 5th

Answer to Example

We stated the discount rate to be 4%.

When is the last day to take advantage of the discount?August 10th

Do they make the discount period?Yes

What is the cash price?727.05 * .96 = 697.97

Putting it all together

Date: October 10, 2009 McKee Foods Corporation Invoice Number: 6515280

Corner Junction Terms: 4/10, n/30 Sold By:Independent DistributorBecca

Qty Description Net Cost

24241236241224

Chewy Choc ChipChewy Oats & HoneyStar CrunchOatmeal PiesCherry PieChoc Chop CookieCosmic Brownie

4.444.442.226.668.043.904.44

Total Store Cost $ 34.14 What is the discount percent?When is the last day they are able to take

advantage of the discount?What is the net price, when paid on October 15,

2009?

Answer to the Example

What is the discount percent?4%

When is the last day they are able to take advantage of the discount?October 20, 2009

What is the net price, when paid on October 15, 2009?34.14 * .96 = $32.77

Putting it all together

Date: August 10, 2009 Augusta Sportswear Invoice Number: 1171980

Corner Junction Terms: 5/10, EOM Sold By:

Qty Description Net Cost

5127

Micro poly pant linedMicro poly pant linedMicro poly pant linedMicro poly full zip jacket

77.5016.7031.00118.65

Total Store Cost $ 243.85

What is the discount percent?When is the last day they are able to take

advantage of the discount?What is the net price, when paid on September 9,

2009?

Answer to the Example

What is the discount percent?5%

When is the last day they are able to take advantage of the discount?September 10, 2009

What is the net price, when paid on September 9, 2009?243.85 * .95 = $231.66