1. Invoices, Trade Discounts, and Cash Discounts
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2. PERFORMANCE OBJECTIVES
Section I The Invoice 7-1: Reading and understanding the parts of an invoice 7-2: Extending and totaling an invoice Section II Trade Discounts—Single 7-3: Calculating the amount of a single trade discount 7-4: Calculating net price by using the net price factor, complement method 7-5: Calculating trade discount rate when list price and net price are known
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3. PERFORMANCE OBJECTIVES
continued
Section III Trade Discounts—Series 7-6: Calculating net price and the amount of a trade discount by using a series of trade discounts 7-7: Calculating the net price of a series of trade discounts by using the net price factor, complement method 7-8: Calculating the amount of a trade discount by using a single equivalent discount Section IV Cash Discounts and Terms of Sale 7-9: Calculating cash discounts and net amount due 7-10: Calculating net amount due, with credit given for partial payment 7-11: Determining discount date and net date by using various terms of sale dating methods
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4. The Invoice invoice freight terminology
A document detailing a sales transaction, containing a list of goods shipped or services rendered, with an account of all costs.
freight terminology
F.O.B.—term used in quoting shipping charges meaning “free on board” or “freight on board.”
F.O.B. shipping point
Buyer pays transportation charges from the vendor’s location.
F.O.B. destination
Seller pays shipping charges to the buyer’s store or warehouse and then bills the buyer for these charges on the invoice.
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5. Typical Invoice Format
EXHIBIT 7-1
Typical Invoice Format
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6. Invoice Terminology and Abbreviations
EXHIBIT 7-2
Invoice Terminology and Abbreviations
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7. EXHIBIT 7-3 Shipping Terms
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8. Extending and Totaling an Invoice
invoice subtotal
The amount of all merchandise or services on the invoice before adjustments.
invoice total
The final amount due from the buyer to the seller.
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9. To extend and total an invoice
Step 1 For each line of the invoice, multiply the number of items by the cost per item.
Extended total = Number of items × Cost per item
Step 2 Add all extended totals to get the invoice subtotal.
Step 3 Calculate the invoice total by adding the freight charges, insurance, and any other charges to the subtotal.
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10. Extending and Totaling an Invoice
From the following invoice, extend each line to the total column and calculate the invoice total and subtotal:
Stock #
Quantity
Unit
Merchandise Description
Unit Price
Total
R443
125
ea.
Food Processor
89.00
B776 24
Microwave oven
225.40
Z133 6
dz.
12” Mixer
54.12
Z163 1
bx.
Mixer Cover
166.30
Invoice Subtotal
Shipping Charges
194.20
Invoice Total
11,125.00
5,409.60
324.72
166.30
17,025.62
17,219.82
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11. Trade Discounts—Single
Reductions from the manufacturer’s list price given to businesses that are “in the trade” for performance of marketing functions.
Trade discount × List price = Trade discount rate
list price
Suggested retail selling price of an item, set by the manufacturer or supplier.
The original price from which discounts are taken.
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a publicly accessible website, in whole or in part.

12. Trade Discounts—Single
continued
net price
The amount a business actually pays for the merchandise after the discount has been deducted.
Net price = List price – Trade discount
net price factor
The percent of the list price a business pays for merchandise.
It is the multiplier used to calculate the net price.
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a publicly accessible website, in whole or in part.

13. To calculate net price by using the net price factor
Step 1 Calculate the net price factor, complement of the trade discount rate.
Net price factor = 100% – Trade discount rate
Step 2 Calculate the net price.
Net price = List price × Net price factor
Note: This procedure can be combined into one step by the formula
Net price = List price(100% – Trade discount rate)
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a publicly accessible website, in whole or in part.

14. Trade Discount Example
Find the amount of the trade discount on an MP3 player that has a list price of $ less a trade discount of 20%
Trade discount = List price × Trade discount rate
Trade discount =
× .20 =
49.99
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a publicly accessible website, in whole or in part.

15. Net Price—Complement Method Example
A beauty salon has ordered for beauty supplies from a wholesaler. The list price of the order is $2,800. If the vendor offers a trade discount of 46%, what is the net price of the order?
Net price = List price × Net price factor
Net price factor = 100 – 46 =
54%
Net price = 2,800 × .54 =
1,512
Alternate Method:
Net price = 2,800 (100% – 46%)
= 2,800(.54)
= 1,512
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a publicly accessible website, in whole or in part.

16. For Calculating TRADE DISCOUNT RATE
Step 1 Calculate the amount of the trade discount
Trade discount = List Price – Net Price
Step 2 Calculate the trade discount rate.
Trade discount rate = Trade discount
List Price
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a publicly accessible website, in whole or in part.

17. Trade Discount Rate Example
A watch has a list price of $889 and can be bought by the jewelry store for a net price of $ What is the amount of the trade discount and the trade discount rate?
Trade discount amount = List price – Net price
Trade discount rate =
Amount of trade discount
List price
Trade discount amount = – =
343.25
Trade discount rate =
343.25
889.00
.3861 = 38.61%
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18. Trade Discounts—Series
chain, or series, trade discount
Term used when a vendor offers a buyer more than one trade discount.
reasons for multiple discounts:
Position or level in the channel of distribution
Volume buying
Advertising and display
Competition
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a publicly accessible website, in whole or in part.

19. Trade Discounts—Series Example
Calculate the net price and trade discount amount for merchandise with a list price of $4,000 less trade discounts of 10/15/25.
4,000 x
4, ,600
3,600 x
3, ,060
3,060 x
3, ,295
Trade discount amount = List price – Net price
Trade discount amount = 4,000 – 2,295 =
1,705
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a publicly accessible website, in whole or in part.

20. For Calculating net price by using the net price factor
Step 1 Find the complement of the trade discount rates in the series by subtracting each from 100% and converting them to decimal form.
Step 2 Calculate the net price factor of the series by multiplying all the decimals together.
Step 3 Calculate the net price by multiplying the list price by the net price factor.
Net price = List price × Net price factor
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a publicly accessible website, in whole or in part.

21. Trade Discounts—Series Net Price Factor Example
Calculate the net price and trade discount amount for merchandise with a list price of $4,000 less trade discounts of 10/15/25.
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a publicly accessible website, in whole or in part.

22. Single equivalent discount = 1 – Net price factor
To calculate the single equivalent discount and the amount of a trade discount
Step 1 Calculate the net price factor as before by subtracting each trade discount from 100% and multiplying them all together in decimal form.
Step 2 Calculate the single equivalent discount by subtracting the net price factor in decimal form from 1.
Single equivalent discount = 1 – Net price factor
Step 3 Find the amount of the trade discount by multiplying the list price by the single equivalent discount.
Trade discount = List price × Single equivalent discount
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a publicly accessible website, in whole or in part.

23. Trade Discounts—Series Single Equivalent Discount Example
Motor City received an order of satellite radios listing for $9,500 and trade discounts of 25/13/8. Calculate the single equivalent discount and the trade discount.
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a publicly accessible website, in whole or in part.

24. Cash Discounts and Terms of Sale
The details of when an invoice must be paid, and if a cash discount is being offered.
credit period
The time period that the seller allows the buyer to pay an invoice.
net date, due date
The last day of the credit period.
cash discount
An extra discount offered by the seller as an incentive for early payment of an invoice.
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a publicly accessible website, in whole or in part.

25. Cash Discounts and Terms of Sale
continued
invoice date
The date an invoice is written.
The beginning of the discount and credit periods when ordinary dating is used.
cash discount period
The time period in which a buyer can take advantage of the cash discount.
discount date
The last day of the discount period.
net amount
Amount of money due from the buyer to the seller.
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a publicly accessible website, in whole or in part.

26. EXHIBIT 7-4
Terms of Sale
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a publicly accessible website, in whole or in part.

27. EXHIBIT 7-5 Terms of Sale Time Line
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28. To calculate Cash discount and net amount due
Step 1 Calculate the amount of the cash discount by multiplying the cash discount rate by the net price of the merchandise.
Cash discount = Net price × Cash discount rate
Step 2 Calculate the net amount due by subtracting the amount of the cash discount from the net price.
Net amount due = Net price – Cash discount
Note: As with trade discounts, buyers are frequently more interested in the net amount due than the amount of the discount. When that is the case, we can simplify the calculation by using the complement method to determine the net amount due.
Net amount due = Net price(100% – Cash discount rate)
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a publicly accessible website, in whole or in part.

29. Cash Discounts and Net Amount Due Example
A retailer buys merchandise with an invoice amount of $7,000. The terms of sale are 2/10, n/30. What is the amount of the cash discount? What is the amount due if the bill is paid by the 10th?
Alternate Method: Net amount due = 7,000 (100% – 2%) = 7,000 (.98) = 6,860
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a publicly accessible website, in whole or in part.

30. Calculating Net Amount Due, with Credit Given for Partial Payment
When a portion of the invoice is paid within the discount period.
partial payment credit
The amount of the invoice paid off by the partial payment.
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a publicly accessible website, in whole or in part.

31. To calculate Partial Payment credit and net amount due
Step 1 Calculate the amount of credit given for a partial payment by dividing the partial payment by the complement of the cash discount rate.
Step 2 Calculate the net amount due by subtracting the partial payment credit from the net price.
Net amount due = Net price – Partial payment credit
Partial payment
100% – Cash discount rate
Partial payment credit =
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a publicly accessible website, in whole or in part.

32. Net Amount Due, with Credit Given for Partial Payment Example
Metro Wireless purchased $28,900 in phones on November 25 with terms of sale of 4/20, 3/30, n/60. What is the net amount due if Metro Wireless sends a partial payment of $5,000 on December 20?
Partial payment credit
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a publicly accessible website, in whole or in part.

33. To finding a future date using a days-in-a-year calendar
Step 1 Find the “day number” of the starting date.
Note: In leap years, add 1 to the day numbers beginning with March 1.
Step 2 Add the number of days of the discount or credit period to that day number.
Note: If the new day number is over 365, subtract This means the future date is in the next year.
Step 3 Find the date by looking up the new day number from Step 2.
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a publicly accessible website, in whole or in part.

34. Days-In-A-Year Calendar
EXHIBIT 7-6
Days-In-A-Year Calendar
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35. Finding the Net Date Example
If an invoice is dated March 25 and is due in 85 days, what is the net date?
March 25 = 84
Due days = 85
Total days = 169
Due date = June 18
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36. Terms of Sale—Dating Methods
ordinary dating
When the discount period and credit period start on the invoice date.
end-of-month (EOM or proximo) dating
Depending on invoice date, terms of sale start at the end of the month of the invoice or the end of the following month.
receipt of goods (ROG) dating
Terms of sale begin on the date the goods are received by the buyer.
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a publicly accessible website, in whole or in part.

37. Terms of Sale—Dating Methods
continued
extra, ex, or x dating
The buyer receives an extra discount period as an incentive to purchase slow-moving or out-of-season merchandise.
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a publicly accessible website, in whole or in part.

38. Ordinary Dating Example
An invoice is dated May 5 with terms of 4/15, n/30. What are the discount date and net date?
Discount date = May days = May 20
Net date = May days = 26 days remaining in May 4 days in June = June 4
Alternate calendar method: May 5 = = 155 = June 4
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a publicly accessible website, in whole or in part.

39. EOM Dating Example EOM Dating:
For invoices dated between the 1st of the month and the 25th, terms begin the beginning of the following month. For invoices dated after the 25th, skip a month and the terms begin the beginning of the following month.
Example: An invoice is dated August 29 with terms of 4/15 EOM. What are the discount date and the net date?
After the 25th of the month, terms of sale begin after the end of the following month.
Discount date = October 15
Net date = October days = November 4
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a publicly accessible website, in whole or in part.

40. ROG Dating Example
An invoice dated January 15 has terms of 3/20 ROG. The goods are delayed in shipment and arrive March 2. What are the discount date and the net date?
Discount date = March = March 22
Net date = March days = April 11
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a publicly accessible website, in whole or in part.

41. Extra Dating Example
What are the discount date and the net date for an invoice dated November 6, with terms 4/15, 30 extra?
Discount date =
November days + 30 days = December 21
Net date = December =
December 21 = days = 375 – 365 = January 10
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a publicly accessible website, in whole or in part.

42. Chapter Review Problem 1
Solve the following word problem:
Lawn and Garden buys lawnmowers that list for $ less a 30% trade discount. What are the amount of the trade discount and the net price of each lawnmower?
Trade discount = × .30 =
266.99
Net price = – =
$622.96
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a publicly accessible website, in whole or in part.

43. Chapter Review Problem 2
Solve the following word problem:
If Warner Co. sends a $1,350 partial payment for an invoice of $4, with terms of 3/10, n/30, by the discount date, what is the balance due on the invoice?
Partial payment credit
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44. Chapter Review Problem 3
What is the net price factor for trade discounts of 25/15/10?
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a publicly accessible website, in whole or in part.

45. Chapter Review Problem 4
What is the single equivalent discount for this trade discount series: 20/15/11?
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a publicly accessible website, in whole or in part.

46. Chapter Review Problem 5
Solve the following word problem:
A firm orders merchandise on May 4. Terms of sale are 2/10, n/30 EOM. What are the discount date and the net date?
Date is between the 1st and the 25th.
Discount date: June 10
Net date: June days = June 30
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a publicly accessible website, in whole or in part.