Transcript Math 1220 Section 7.4 Notes

Chapter 7
Mathematics of
Buying
Section 4
Cash Discounts:
Other Dating Methods
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Solve Cash Discount Problems with
End-of-Month Dating
End-of-month and proximo dating
abbreviated EOM and prox.
Number of days counted from end of the month in
which invoice is dated
3/10 EOM and 3/10 prox. both mean:
3% may be taken as cash discount if paid by
10th of the month that follows the sale
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Solve Cash Discount Problems with
End-of-Month Dating
If invoice date is the 26th or later, add an extra
month
Example: 3/10 EOM dated March 25, then last
date for discount is April 10
Example: 3/10 EOM dated March 26, then last
date for discount is May 10
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Example
If an invoice from Dell is dated March 11 with terms of
3/10 EOM, find
(a) the final date on which the cash discount may be taken
and
The discount date is April 10 (10 days after the end of
March).
(b) the net payment date
When no net payment due date is given, common business
practice is to allow 20 days after the last discount date. The
net payment date is April 30, which is 20 days after the last
discount date (April 10), since no net payment date is
given.
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Example
Find the amount due on an invoice of $717 for
some Revlon curling irons dated January 17, if
terms are 1/10 prox. and the invoice is paid on
January 19.
Last date for discount is January 27(10 days after
the end of January).
January 19 is within the discount period, so the
discount is earned.
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Example
Discount = 1% of invoice amount
= .01 × $717 = $7.17
Amount due = invoice amount – discount
= $717 – $7.17 = $709.83
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Use Receipt-of-Goods Dating to Solve
Cash Discount Problems
Receipt-of-goods abbreviated ROG
Offers cash discount determined from date on
which goods are received
Often used when shipping time is long
Invoice may arrive immediately (Internet)
But goods may take weeks to arrive
Buyer given time to inspect merchandise
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Example
Pet Smart received an invoice dated January 19,
with terms of 3/15 ROG. The goods were
received on January 26. Find
(a) the final date on which the cash discount may
be taken
The discount date is February 10 (15 days after
receipt of goods, January 19 plus 15 days).
(b) the net payment date
February March 2 (20 days after the last discount
date).
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Example
Find the amount due to Shopko on an invoice of
$311 for some printing services, with terms of 2/10
ROG, if the invoice is dated June 19, the goods are
received June 30, and the invoice is paid July 17.
The last date to take the 3% cash discount is July
10, 10 days after June 30.
Invoice is paid on July 17, 7 days after the last
discount date, no cash discount may be taken.
The entire amount of the invoice must be paid.
The amount due is $311.
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Use Extra Dating to Solve Cash
Discount Problems
Extra dating (extra, ex, or x)
Buyer has additional time to take advantage of
cash discount
Supplier during slow season might offer it to
generate more sales or gain competitive advantage
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Example
An invoice for Top Paw Pet Carriers is dated March
11 with terms of 3/10–40 ex. Find
(a)the final date on which the cash discount may be
taken
Discount date is April 20 (20 days remaining in
March + 20 days in April = 40).
(b) the net payment date
May 10 (20 days after the last discount date)
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Example
An invoice from Top Paw., is dated August 2,
amounts to $7117, offers terms of 2/10–50 x, and
is paid on September 16. Find the net payment.
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Example
Step 1 The last day to take the 2% cash discount
is October 1(August 2 + 60 days =
October 1). Since the invoice is paid on
September 16, the 2% discount may be
taken.
Step 2 The 2% cash discount is computed on
$7117, the amount of the invoice. The
discount to be taken is $142.34.
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Example
Step 3 Subtract the cash discount from the
invoice amount to determine the amount
of payment.
$7117.00 invoice amount
– $142.34 2% cash discount
$6974.66 amount of payment
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Determine Credit Given for
Partial Payment of an Invoice
Occasionally, a customer may pay only a portion
of the total amount due on an invoice
If this partial payment is made within a discount
period, the customer is entitled to a discount on
the portion of the invoice that is paid
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Example
Jones Bros Cupcakes receives an invoice for
$1117 for new oven dated March 6 that offers
terms of 2/10 prox. A partial payment of $225 is
made on March 19. Find
(a)the amount credited for the partial payment,
(b) the balance due on the invoice, and
(c) the cash discount earned.
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Example
(a) The cash discount is earned on the $225
partial payment made on March 19(April 10
was the last discount date).
The amount paid ($225) is part of the base
(amount for which credit is given)
100% – 2% = 98%
The rate 98% is used to solve for base using
the formula:
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Example
Part
Base =
Rate
The amount credited for partial payment is
$229.60.
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Example
(b) Balance due
= Invoice amount – Credit given
Balance due
= $1117 – $229.60 = $887.4
(c) Cash discount
= Credit given – Partial payment
Cash discount
= $229.60 – $225 = $4.60
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