cash discount and trade discount

REVIEW

What comes in your mind when you hear the word

“DISCOUNTS”?

TWO KINDS OF DISCOUNT

TRADE DISCOUNT CASH DISCOUNT

“CASH AND TRADE EMOTION”

CASH -

TRADE -

AND

TRADE DISCOUNT

CASH DISCOUNT

TRADE DISCOUNT

-the amount of discount that the wholesaler or retailer receives off the list price or the difference between the list price and the net price.

ALWAYS!

EXAMPLE OF TRADE DISCOUNT

Hello Pres. Obama! May I buy a box of

canned pineapple juice to you?

Yes sure! Since you will buy the whole box, I

will give you a discount of 30%

KEY TERMS IN TRADE DISCOUNT

• Suggested Retail Price/Catalog Price/List Price- three common terms for the price which the manufacturer suggests an item be sold to the consumer.

•Net price- the price the manufacturer or retailer pays or the list price minus the trade discount.

•Discount rate- a percent of the list price.

TRADE DISCOUNT FORMULA

Trade Discount (TD) = List Price (LP) x Trade Discount Rate (R) or

TD= LP x R

Net Price (NP) = List Price (LP) - Trade Discount (TD) or

NP= LP - TD

LET’S HAVE AN EXAMPLE

Dominador will buy a box of canned tuna that lists for P680 and has a trade discount of 25%. How much is the Net Price?

Solution: TD = LP x R

Trade Discount = P680 x .25% = P170

NP = LP – TD

Net Price = P680 – P170

= P510

Thank you!

TRY TO HELP THEM!Ex. 2

Pablito will buy a set of Barbie Dolls that lists for P950 and has a trade discount of 30%. How much is the Net Price?

Ex. 3Clementina will buy a coffee maker that lists for P1,500 and has a trade discount of 50%. How much will Clementina pay?

Let us know if you got it correctly!Ex.2Solution: Trade Discount = P950 x .30% = P285

Net Price = P950 – P285 = P665

Thank you!

Ex.3Solution: Trade Discount = P1500 x .50%

= P750 Net Price = P1500 – P750 = P750

A million thanks!

But, what if there a lot of Discounts?

TRADE DISCOUNT SERIES OR CHAIN DISCOUNT

-Additional discounts that are deducted one after another from the list price.

Two Methods in Calculating Trade Discount Series

1. Step by Step Method

2. Complement Method

Anne Curtis will buy a set of shoes that lists for P2, 000 and has a trade discount series of 30/20/15. Find the net price.

1. Step by Step Method

P 2, 000

X .30 P 600

P 2, 000

- 600 P 1, 400

P 1, 400

X .20 P 280

P 1, 400

- 280P 1,120

P 1,120

X .20 P 168

P 1,120

- 168 P 952

TD= LP x R NP = LP – TD

Net Price= P952

Gracias!

Complement of Percent

- the difference between 100% and the given percent.

Examples:

The complement of 30% is 70%.

The complement of 55% is 45%

The complement of 5% is 95%

2. Complement Method Anne Curtis will buy a set of shoes that lists for P2, 000 and has a trade discount series of 30/20/15. Find the net price.

Step 1: Subtract each trade discount from 100% and convert to decimals.

100 100 100- 30 - 20 - 15

70- .7% 80- .8% 85- .85%Step 2: Multiply all the complements together

to get the net price factor.

Net Price Factor = .7 x .8 x .85

= 0.476

Anne Curtis will buy a set of shoes that lists for P2, 000 and has a trade discount series of 30/20/15. Find the net price.

Step 1: Subtract each trade discount from 100% and convert to decimals.

100 100 100- 30 - 20 - 15

70- .7% 80- .8% 85- .85%Step 2: Multiply all the complements together

to get the net price factor.

Net Price Factor = .7 x .8 x .85

= 0.476

That’s more faster and

easier way! Thanks!

Step 3: Net Price = List Price x Net Price Factor

Net Price = P2, 000 x 0.476

Net Price= P952

2. Complement Method

SINGLE EQUIVALENT DISCOUNT

Formula:Single Equivalent Discount = 1 – Net Price Factor

= 1 – 0.476= 0.524% or 53%

Anne Curtis will buy a set of shoes that lists for P2, 000 and has a trade discount series of 30/20/15. Find the net price.

TRY TO HELP THEM!Ex. 2

Aling Vilma will buy a set of perfume that lists for P5, 000 and has a trade discount series 20/15/5. Find the net price.

Ex. 3Antonino will buy a DSLR Camera that lists for

P20, 000 and has a trade discount series 30/20/10. Find the net price and the Single Equivalent Discount.

Let us know if you got it correctly!Thank you!

I’ll give you my

power for helping

me!

P 5, 000

X .20 P 1000

P 5, 000

- 1, 000 P 4, 000

P 4, 000

X .15 P 600

P 4, 000

- 600P 3, 400

P 3, 400

X .05 P 170

P 3, 400

- 170 P 3, 230

Net Price= P3, 230100 100 100- 30 - 20 - 10

70- .7% 80- .8% 90 .9%

Net Price Factor = .7 x .8 x .9

= 0.504Net Price = P20, 000 x 0.504

Net Price= P10, 080 SED= 1 – NPF

= 1 – 0.504=0.496% or 49.6%

Ex. 3

Ex. 2

CASH DISCOUNT- An incentive that a seller

offers to a buyer in return for paying a bill owed before the scheduled due date.

EARLY!

KNUCKLE METHOD

THREE WAYS TO CALCULATE

CASH DISCOUNTS

1. ORDINARY DATING METHOD

-Credit terms 2/10, n/30. This means you will get a 2% discount if you pay within 10 days of receiving the invoice. You must pay the bill within 30 days or you start to incur interest charges.

LET’S HAVE AN EXAMPLE!

Vic Sotto received an invoice of P3, 000 dated January 1, 2015, terms 2/10, n/30. He paid it in full on January 9, 2015. How much did he pay?

Date of Invoice: January 1, 2015Day 1 of the discount period:January 2, 2015Last day of the discount period: January 10, 2015Date of Payment: January 9, 2015 (Vic Sotto got a discount)

Cash Discount = Price x Discount Rate = P3, 000 x .02%= P60

Net Amount = Price – Cash Discount

= P3, 000 – P60

= P2, 940

Credit terms is 2/10, n/30 E.O.M. This means you get a 2% discount if you pay within the first 10 days of the next month. You must pay the bill within the first 30 days of the next month or you start to incur interest charges.

2. END OF THE MONTH METHOD

LET’S HAVE AN EXAMPLE!

Bangga, Inc. received an invoice for P50, 000 dated June 5, 2014, terms 2/10 E.O.M. The invoice is paid on July 10, 2014. How much is the amount paid?

Date of Invoice: June 5, 2014Day 1 of the discount period:July 1, 2014Last day of the discount period: July 10, 2014Date of Payment: July 10, 2014

Cash Discount = Price x Discount Rate = P3, 000 x .02%= P60

Net Amount = Price – Cash Discount

= P3, 000 – P60

= P2, 940

(Bangga, Inc. got a discount)

3. RECEIPT OF GOODS DATING METHOD

Credit Terms is 2/10 R.O.G. This means you get a 2% discount if you pay within the first 10 days after the goods are received.

LET’S HAVE AN EXAMPLE!

Nora Aunor received an invoice of P5, 550 dated January 10, 2015, terms 2/10, n/30 R.O.G., for a shipment that arrived on February 5, 2015. Nora Aunor paid it in full on February 10, 2015. How much did Nora Aunor pay?

Date of Invoice: January 1, 2015Day 1 of the discount period:January 2, 2015Last day of the discount period: January 10, 2015Date of Payment: January 9, 2015 (Vic Sotto got a discount)

Cash Discount = Price x Discount Rate = P3, 000 x .02%= P60

Net Amount = Price – Cash Discount

= P3, 000 – P60

= P2, 940

IMPORTANCE

Many of you will utilize this information at some point in your life. You may be working in purchasing, or accounting, or sales. You may be negotiating for a car. You may own a small business. These terms, and the math underlying them, are important in business. So, learn this material, utilize your percentage multiplication skills, and your percentage to decimal conversion skills, and go do business!

ASSIGNMENT

1. Analyze the process of Freight In.2. Study and do have a list of key terms

in Freight In.

Reference: Santos, Francis. Principles of Accounting. Malabon City: Mutya Publishing House INC., 2007. 78-85.