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