Page 122 - CalcBus_Flipbook

13-8 Merchandising CH 13]

When the equivalent discount rate is (1) multiplied to the list price and then (2) that value
is subtracted from the list price the net price is calculated.

List price $800
− (List price x equivalent discount) − ($800 x 0.2305)
Net price $615.60

When the list price is multiplied by the series discount (NPER) then the net price is
determined.

List price $800
x Series Discount Net price decimal (NPER) x 0.7695
Net price $615.60

What you have calculated is the same value (net price) from two different directions where
the series discount value and the single equivalent discounted added together equals 1 or as a
percentage 100% (0.7695 + 0.2305) = 1 or (0.7695 + 0.2305) x 100% = 100%.

Using your hand calculator the solution algorithm is:

With your hand held calculator (first convert percent values to decimals):

Cl/C 1 M+ x .9 x .9 x .95 =

M- MR —> 0.2305 , means 23.05%

Cash Discounts

Cash discounts are offered by sellers to encourage prompt payments by customers. Cash
discounts come about by the buyer and seller agreeing to when payment is due for goods
purchased; a purchase agreement (contract) consists of sale terms. Typically these terms
apply to all deliveries until changes and an agreement to new terms (contract) are established.
Sellers expect cash immediately but they will often provide credit to the buyer (trade credit).
Payment terms are typically printed on invoices with deliveries which helps mitigate
misunderstandings.
When delivering purchased goods to a buyer, the seller would like to be paid immediately
as in Cash On Deliver, COD. However, this is often not the case as buyers deliver invoices
received to their accounting department for recording and payments. Thus, terms of payment
are written on the invoices. With these terms, and the working relationship the seller has with
their buyers, the seller often extends trade credit. During the credit period, the time between
delivery and payment, the terms of payment are applied; such terms may be written as net 30
days or simply n/30. Further, the retail buyer in high volume businesses will probably sell
the delivered goods before payment is made on the due date. This occurs with the grocery
stores and warehouse outlets such Sam’s Club and Costco.
A cash discount is also offered by suppliers to encourage a faster than 30 day payment
on their deliveries. The cash discount may be immediate or within a period of time shorter
than the period of time stated on an invoice. Cash discounts may be shown on an invoice in a
variety of ways.

Ordinary Dating. Credit terms granted by suppliers appear on their invoice and may
include discounts, and when payment is due. The most common terms are 2/10, n/30. This
statement defines that the buyer may reduce the net of the invoice by 2% if it is paid within
10 days of deliver, and the delivery date is written on the invoice, otherwise the whole bill
payment as a net total is due 30 days from delivery, and no discount is given. A discount
term of 2/10, n/30 also defines that the regular credit period is 30 days, however, the buyer
may reduce the invoice charge by 2% if payment is made within the 10 day period, and thus
represents the net price after other discounts have already been applied as discussed above.
Presume an invoice shows terms as 5/10, 2/30, n/60 this would mean that the supplier
is offering the buyer a 5% discount if the invoice is paid within 10 days of delivery, or if they

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