Section 3 - Cash Discounts: Ordinary Dating Methods

Introduce Cash Discounts.

Cash DiscountsCash discounts are offered as a means of

encouraging quick payment.

Terms: 2/10 n/30

  Home Accessories Wholesalers  

   

Sold To: Kitchens Galore Date: 10-Jun

  10100 Fair Oaks Blvd Order No. 796152

  Fair Oaks, CA 95628 Shipped by: UPS

    Terms: 2/10 n/30

QuantityOrder No. Description Unit Price

Extension Total

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  

Cash Discounts: Ordinary Dating Method

Ordinary Dating MethodMost cash discounts are expressed using the

Ordinary Dating Method.

2/10, n/302/10, net 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)

0 10 30

2% net

30: must pay within 30 days the net amount

Example 1Determine the cash discount.

Invoice Amount: $285Terms: 3/15, n/30

Payment will be made within 15 days.

Discount = $285 x 3%

Discount = $285 x .03

Discount = $8.55

Example 2Determine the cash discount.

Invoice Amount: $485 (includes $15 in shipping)

Terms: 2/10, n/30 Payment will be made within 10 days.

Discount = $470 x 2%

Discount = $470 x .02

Discount = $9.40

Remove shipping: $485 - $15 = $470

Determine final discount date, net payment date.

Number of Days

Day of Month Jan. Feb. Mar Apr May Jun Jul Aug1 1 32 60 91 121 152 182 2132 2 33 61 92 122 153 183 2143 3 34 62 93 123 154 184 2154 4 35 63 94 124 155 185 2165 5 36 64 95 125 156 186 2176 6 37 65 96 126 157 187 2187 7 38 66 97 127 158 188 2198 8 39 67 98 128 159 189 2209 9 40 68 99 129 160 190 22110 10 41 69 100 130 161 191 22211 11 42 70 101 131 162 192 22312 12 43 71 102 132 163 193 22413 13 44 72 103 133 164 194 22514 14 45 73 104 134 165 195 22615 15 46 74 105 135 166 196 22716 16 47 75 106 136 167 197 22817 17 48 76 107 137 168 198 22918 18 49 77 108 138 169 199 23019 19 50 78 109 139 170 200 23120 20 51 79 110 140 171 201 23221 21 52 80 111 141 172 202 23322 22 53 81 112 142 173 203 23423 23 54 82 113 143 174 204 235

Handout or use page 349 in your textbook.

Invoice Date: March 7Terms: 2/15, n/30

Final Discount Date (last day to earn the discount) __________Net Payment Due Date __________

March 7 + 15 days = March 22

March 7 + 30 days = 66 + 30 = 96 (April 6)

April 6

Invoice Date: October 17Terms: 1.5/20, n/30

If payment is made on November 7, is the 1.5% cash discount still “available”?

October 17+ 20 days = November 6290 + 20 = 310

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

PracticeCh 7, Section 3

Page 283#5, 6, 9, 10, 12

Use postdating when calculating cash discounts.

PostdatingInvoices are sometimes postdated.

Gives the purchaser more time to take advantage of the discount.

Date 7/25 AS OF 08/01

Postdating

Invoice Date

AS OF

Terms Final Discount Date

Net Payment Date

June 30

July 10

3/15, n/60 July 10 + 15 days

July 25

July 10 + 60 days = September 8191 + 60 = 251

PracticeCh 7, Section 3

Page 283#3, 4

Sliding Scale Cash Discounts

10Day 0 20 30 60

Cash Discounts: Sliding Scales

3/10, 2/20, 1/30, n/60

3% 2% 1% net

Practice Problem Invoice Amount (w/out shipping): $1080 Invoice Date: July 8 Terms: 5/10, 2/20, n/30

Date that Invoice is Paid: July 26 Shipping and Insurance: $62.15

Amount of Discount = ____________________

Total Amount Due = _____________

July 8 July 26

26 – 8 = 18 days

$1080 x 2%$21.60

$1,080 - $21.60 + 62.15$1,120.55

PracticeCh 7, Section 3

Page 283#11

Practice

Practice #18, page 284

List Price of George Foreman Grill: $59.99Trade Discount: 20/5/10Terms: 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

x .96 = $39.39 Apply Cash Discount:

Practice Ch 7, Section 3

Page 284#16 – 19

Part II - Practice TestCh 7 Practice Test (handout)

All required problems completed. 5 4 3 2 1 0Process (solution method shown) for all problems except multiple choice or fill-in-the-blank ones.

5 4 3 2 1 0

Score _____ / 10

Scoring Criteria for Practice Test: