Chapter 3

Discounts: Trade and Cash

McGraw-Hill/Irwin ©2008 The McGraw-Hill Companies, All Rights Reserved

 Trade Discount Amount & Net Price Formulas

Trade discount amount = List

price x Trade discount rate

$5,678 x 25% = $1,419.50

Net Price = List price - Trade

discount amount

$5,678 - 1,419.50 = $4,258.50

7-2
 Complement
Complement Complement - The
difference between
the single discount
rate and 100%
75%

25%
If the trade discount
is 25%, the
complement is 75%
(100%-25%)
Trade
Discount

7-3
 Single Trade Discount

The price of a Macintosh Computer is

$2,700. The manufacturer offers a
40% trade discount. What are the
trade discount amount (TDA) and the
net price?

TDA = $2,700 x .40 = $1,080

Net Price = $2,700 - $1,080 = $1,620
Using Complement
$2,700 x .60 = $1,620

7-4
 Calculating List Price When Net Price and Trade
Discount Rate Are Known

List Price = Net Price .

Complement of trade discount rate

Macintosh Computer has a

$1,620 net price and a 40%
trade discount. What is the list
100% - 40% = 60%
price? $1,620
.60
LP = $2,700

7-5
 Chain Discounts

Two or more discounts:

20/15/10 To calculate discount
20 + 15 + 10 = 45%

Find the net price equivalent rate

(multiply the complements)
100% 100% 100%
-20 -15 - 10
.80 x .85 x .90 = .612

7-6
 Calculating Net Price with a Chain Discount
The price of an office
equipment is $15,000.
With a chain discount of $15,000 $15,000 $12,000 $10,200
20/15/10, what is the net
price? x .20 -3,000 - 1,800 - 1,020

$3,000 $12,000 $10,200 $9,180

x .15 x .10

$1,800 $1,020

7-7
 Calculating Net Price Using Net Price
Equivalent Rate
The price of a office
equipment is $15,000.
With a chain discount of
Find the net price equivalent
20/15/10, what is the net
rate (multiply the complements)
price?
.80 x .85 x .90 = .612
$15,000 x .612 = $9,180
Trade Discount Amount
$15,000 - $9,180 = $5,820

7-8
 Cash Discounts

Discount for prompt payment. Not taken on freight,

returned goods, sales tax, & trade discounts.

Credit Period
Mar. 1 Mar. 31

Time period sellers gives buyers to pay invoices

Discount Period
Mar. 1 Mar. 10

Time period buyer has to take advantage of cash discount

7-9
 Invoice
New Hampshire Propane Company
Date Description Qty. Price Total
Previous Balance
6/24/08 PROPANE 3.6 $3.40 $12.24
Invoice No. Total this invoice: $12.24
004433L
Invoice Date AMOUNT DUE: $12.24
6/26/08
Prompt Pay Discount: $0.19

Net Amount Due if RECEIVED by 7/10/08: $12.05

Due Date 7/26/08
7-10
 Aids in Calculating Credit Due Dates

Days-in-a-Month Rule
Thirty days has September, April, June, and November, all the
rest have 31 except February has 28, and 29 in leap years

Mar. May July Aug. Oct. Dec.

Jan. Apr. Nov.
Sept.
June
Feb.

Knuckles Months

31 days: Jan., March, May, July, Aug., Oct., Dec.

7-11
 Table 7.1 - Exact-days-in-a-year calendar
Day of 31 28 31 30 31 30 31 31 30 31 30 31
month Jan. Feb. Mar Apr May Jun Jul Aug Sep Oct Nov Dec
1 1 32 60 91 121 152 182 213 244 274 305 335
2 2 33 61 92 122 153 183 214 245 275 306 336
3 3 34 62 93 123 154 184 215 246 276 307 337
4 4 35 63 94 124 155 185 216 247 277 308 338
5 5 36 64 95 125 156 186 217 248 278 309 339
6 6 37 65 96 126 157 187 218 249 279 310 340
7 7 38 66 97 127 158 188 219 250 280 311 341
8 8 39 67 98 128 159 189 220 251 281 312 342
9 9 40 68 99 129 160 190 221 252 282 313 343
10 10 41 69 100 130 161 191 222 253 283 314 344
11 11 42 70 101 131 162 192 223 254 284 315 345
12 12 43 71 102 132 163 193 224 255 285 316 346
13 13 44 72 103 133 164 194 225 256 286 317 347
14 14 45 73 104 134 165 195 226 257 287 318 348
15 15 46 74 105 135 166 196 227 258 288 319 349
16 16 47 75 106 136 167 197 228 259 289 320 350
17 17 48 76 107 137 168 198 229 260 290 321 351
18 18 49 77 108 138 169 199 230 261 291 322 352
19 19 50 78 109 139 170 200 231 262 292 323 353
20 20 51 79 110 140 171 201 232 263 293 324 354
21 21 52 80 111 141 172 202 233 264 294 325 355
22 22 53 81 112 142 173 203 234 265 295 326 356
23 23 54 82 113 143 174 204 235 266 296 327 357
24 24 55 83 114 144 175 205 236 267 297 328 358
25 25 56 84 115 145 176 206 237 268 298 329 359
26 26 57 85 116 146 177 207 238 269 299 330 360
27 27 58 86 117 147 178 208 239 270 300 331 361
28 28 59 87 118 148 179 209 240 271 301 332 362
29 29 - 88 119 149 180 210 241 272 302 333 363
30 30 - 89 120 150 181 211 242 273 303 334 364
31 31 - 90 - 151 - 212 243 - 304 - 365

7-12
 Ordinary Dating Method

2/10, n/30 - “two ten, net thirty”

$400 x.02 = $8
$400 invoice dated July 5; terms $400 - $8 = $392
2/10, n/30; paid on July 11. or
$400 x .98 = $392

Discount Period No Discount

10 Days Day 11 - 30

July July Aug.

5 15 4

Credit Period (30 days)

7-13
 Receipt of Goods (ROG)
3/10, n/30 ROG - Cash discount period begins
when the buyer receives the goods
Paid 900
$900 invoice dated May 9, received
Missed discount
goods July 8; terms 3/10, n/30 ROG;
paid on July 20. period

Discount Period No Discount

Invoice 10 Days
Date Day 11 - 30

May July July Aug.

9 8 18 7

Credit Period (30 days)

7-14
 End of Month (EOM)
1/10 EOM - 1% discount, up until the 10th
of the following month
$600 invoice dated July 6; terms 1/10 $600 x .01 = $6
EOM; paid on August 10.
$600 - $6 = $594
or
$600 x .99 = $594
Discount Period No Discount
Invoice ends on 10th
Date 11th - 30th

July Aug. Aug. Aug.

6 1 10 30

Credit Period
7-15
 End of Month (EOM)
2/10 EOM - Consider the “25th rule” - Skip
a month
$800 invoice dated April 29; terms 2/10 Paid $800
EOM; paid on June 18.
Missed discount
period

Discount Period No Discount

Invoice ends on 10th
Date 10th - 30th

April June June June

29 1 10 30

Credit Period
7-16
 7-23 Publisher, Andrews McMeel’s books are available at
quantity discounts with bulk purchases for educational or
business use. School district 510 purchased 50 books at
$26.95 each with a quantity discount of 5%. (a) What was
total list price for the books? (b) What was the total discount
amount? (c) What was the total net price for the books?
Round to the nearest cent.

a. $26.95 x 50 = $1,347.50 list price

b. $1.347.50 (B) x .05 (R) = $67.375 (P) = $67.38

discount amount
c. $1,347.50 – 67.38 = $1,280.12 net price
7-17
 7-25 A manufacturer of skateboards offered a 5/2/1 chain
discount to many customers. Bob’s Sporting Goods ordered
20 skateboards for a total $625 list price. What was the net
price of the skateboards? What was the trade discount
amount?
Net price
.95 x .98 x .99 = .92169 x $625 = $576.05625
= $576.06

$625 - $576.06 = $48.94

7-18
 7–26. Home Depot wants to buy a new line of shortwave
radios. Manufacturer A offers a 21/13 chain discount.
Manufacturer B offers a 26/8 chain discount. Both
manufacturers have the same list price. What manufacturer
should Home Depot buy
from?

7-19
 Problem 7-26:

Solution:
Manufacturer A
1.0000
.79 x .87 = - .6873
.3127 = 31.27%

Manufacturer B
1.0000
.74 x .92 = - .6808
.3192 = 31.92%

7-20
 7–27. Maplewood Supply received a $5,250 invoice dated
4/15/06. The $5,250 included $250 freight. Terms were 4/10,
3/30, n/60. (a) If Maplewood pays the invoice on April 27,
what will it pay? (b) If Maplewood pays the invoice on May
21, what will it pay?

a. $5,250 - $250 = $5,000 x .97 = $4,850

+ 250 freight
$5,100

b. May 21 $5,250

7-21
 7–31. Amazon.com paid a $6,000 net price for textbooks. The
publisher offered a 30% trade discount. What was the
publisher’s list price? Round to the nearest cent.

$6,000
= $8,571.43
.70

7-22
 7–35. On March 11, Jangles Corporation received a $20,000
invoice dated March 8. Cash discount terms were 4/10, n/30.
On March 15, Jangles sent an $8,000 partial payment. What
credit should Jangles receive? What is Jangles’ outstanding
balance?

$20,000.00
$8,000 - 8,333.33
= $8,333.33
.96 $11,666.67 balance outstanding

7-23