# 12.2 Cash and Trade Discounts

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Lesson 12.2 4/17/2017 12.2 Cash and Trade Discounts Calculate cash discount and cash price Calculate trade discount and invoice price Calculate the rate of discount Lesson 12.2 Business Math

Most business-to-business transactions begin with a purchase order from the buyer that identifies the goods ordered, the agreed upon price, and delivery terms. The purchase order may be written or verbal. After the order is filled, the seller issues a sales invoice. Both documents include the details of the purchase. Lesson 12.2

Sample Invoice Lesson 12.2

Terms of the Sale Terms of sale specify how and when an invoice will be paid. Usually businesses sell to other businesses on account. This means the customer will be billed later for purchases. The time a purchaser has to pay a bill, usually 30 to 90 days, is called the credit period. Lesson 12.2

Cash Discounts Businesses frequently offer cash discounts as a way to encourage their business customers to pay their invoices early. Cash discounts are figured on the invoice price that is shown on the invoice as the total due. The terms of sale tell how much of a discount will be given. Lesson 12.2

Due Date To find the due date of the invoice and the last day for receiving a discount, count ahead, from the date on the invoice, the number of days shown in the terms. Buyers who do not pay their bills by the due date may be charged interest on the amount owed or a late payment fee. Lesson 12.2

Cash Price If the customer pays the invoice within the discount period and deducts a cash discount from the invoice price, the amount paid is called the cash price. Cash Discount = Invoice Price × Rate of Cash Discount Cash Price = Invoice Price – Cash Discount Lesson 12.2

Shipping Charges Sometimes shipping charges appear on the invoice.
If so, they must be added to the cash price to find the total amount due to the seller. Cash discounts are not allowed on shipping charges. Lesson 12.2

Who Pays Shipping? If the terms of sale show f.o.b. destination, or f.o.b. customer, this means the seller will pay the shipping charges. Terms of sale such as f.o.b. factory, or f.o.b. shipping point, mean the buyer will pay shipping costs. Lesson 12.2

BUSINESS TIP The shipping charge may be identified on the invoice as shipping and handling or freight. Lesson 12.2

These are reductions from the list price to their business customers. Trade discounts are usually figured on each item within the invoice. Also, the trade discounts offered to customers may differ. Trade discounts are always based on the list price of the items being purchased. Lesson 12.2

To find the trade discount, multiply the list price times the rate of discount. Rate of Discount × List Price = Trade Discount Lesson 12.2

Calculate Invoice Price
To find the invoice price, or net price, subtract the trade discount amount from the list price. List Price – Trade Discount = Invoice Price Lesson 12.2

Rate of Discount If you know the discount amount and the total amount on which a discount is based, you can find the rate of discount. For example, the cash discount divided by the invoice price (invoice amount) will give the rate of cash discount. Rate of Cash Discount = Cash Discount ÷ Invoice Price Lesson 12.2

Rate of Trade Discount The trade discount divided by the list price will give the rate of trade discount. Rate of Trade Discount = Trade Discount ÷ List Price Lesson 12.2

Lesson 12.2

Lesson 12.2

Lesson 12.2