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5.1 Cash Discounts

The document discusses cash discounts, which are offered by sellers to encourage prompt payment by buyers by lowering the merchandise cost. It demonstrates how to calculate cash discounts using either the cash discount or complement method, and explains cash discount terms which set piecewise discount rates for payments made within a certain number of days. Examples are provided to illustrate calculating cash discounts, net amounts due, final discount dates, and solving other problems related to cash discounts and terms of sale.

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Pearl David
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169 views15 pages

5.1 Cash Discounts

The document discusses cash discounts, which are offered by sellers to encourage prompt payment by buyers by lowering the merchandise cost. It demonstrates how to calculate cash discounts using either the cash discount or complement method, and explains cash discount terms which set piecewise discount rates for payments made within a certain number of days. Examples are provided to illustrate calculating cash discounts, net amounts due, final discount dates, and solving other problems related to cash discounts and terms of sale.

Uploaded by

Pearl David
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Cash Discounts

and Terms of Sale


This presentation demonstrates cash
discounts work and how to compute
them.
CASH DISCOUNTS
or “Pay Me Quickly and Get a Discount”
offered by sellers to encourage prompt
payment by customers.
Sellers ► money is received immediately
“improves cash flow”
Buyers ► gets additional discount
“lowers merchandise cost”
COMPUTING CASH DISCOUNTS
same as computing Trade Discounts

1. Cash Discount Method


Cash Discount = (percent discount)(price)
Net Amount Due = price – cash discount
2. Complement Method
Complement rate = 100% – percent discount
Net Amount Due = (price)(complement rate)
CASH DISCOUNT TERMS
A set of piecewise rate for every payment
made within the indicated number of days.
 
𝟐 𝟏 𝒏
, ,
𝟏𝟎 𝟑𝟎 𝟔𝟎
2% of the price may No discount
be deducted if paid beyond 30 days;
within 10 days 1% of the price may full amount must
be deducted if paid paid by the 60th day
from 11th to 30th day
A. Calculate the cash discount and the net amount
for each of the following transactions:

1. Given: Amount of Invoice = Php158,000


 

Terms of Sale is

𝑪𝑫=𝑷𝒉𝒑 𝟏𝟓𝟖 , 𝟎𝟎𝟎× ( 𝟎 . 𝟎𝟑 )=𝑷𝒉𝒑 𝟒 ,𝟕𝟒𝟎


 

 
A. Calculate the cash discount and the net amount
for each of the following transactions:

2. Given: Amount of Invoice = Php1,266,000


 

Terms of Sale is

𝑪𝑫=𝑷𝒉𝒑 𝟏 ,𝟐𝟔𝟔 ,𝟎𝟎𝟎 × ( 𝟎 .𝟎𝟐 ) =𝑷𝒉𝒑 𝟐𝟓 ,𝟑𝟐𝟎


 

 
B. Calculate the credit given for the partial payment
and the net amount due on the invoice.

1. Given: Amount of Invoice = Php158,000


 

Terms of Sale is
Partial payment made = Php50,000
 
𝟓𝟎 , 𝟎𝟎𝟎 𝟓𝟎 , 𝟎𝟎𝟎
𝑷𝑷𝑪= = =𝟓𝟏 , 𝟓𝟒𝟔 . 𝟑𝟗𝟏𝟕𝟓
𝟏𝟎𝟎 % − 𝟑 % 𝟎 . 𝟗𝟕
 
B. Calculate the credit given for the partial payment
and the net amount due on the invoice.

2. Given: Amount of Invoice = Php1,266,000


 

Terms of Sale is
Partial payment made = Php600,000
 
𝟔𝟎 𝟎 , 𝟎𝟎𝟎 𝟔𝟎 𝟎 , 𝟎𝟎𝟎
𝑷𝑷𝑪= = =𝟔𝟏𝟐, 𝟐𝟒𝟒 . 𝟖𝟗𝟖
𝟏𝟎𝟎 % − 𝟐 % 𝟎 . 𝟗𝟖
 
C. Find the final discount date and the net payment
date for each of the following situations.
1. Given: Date of Invoice is April 12
 

Terms of Sale is
 
𝟏𝟐 +𝟏𝟎=𝟐𝟐 , 𝑭𝑫𝑫 𝒊𝒔 𝑨𝒑𝒓𝒊𝒍 𝟐𝟐
 
C. Find the final discount date and the net payment
date for each of the following situations.
2. Given: Date of Invoice is February 25
 

Terms of Sale is
 

 
D. Complete the table below:
Amount Term of Invoice Actual Date of Credit Outstanding
of Sale Date Partial Partial for Balance
Invoice Payment Payment Partial
Made Payment
P700,000 May 6 P400,000 May 15

 
𝟒𝟎𝟎 , 𝟎𝟎𝟎 𝟒𝟎𝟎 ,𝟎𝟎𝟎
𝑷𝑷𝑪= = =𝟒𝟎𝟖 , 𝟏𝟔𝟑 . 𝟐𝟔𝟓𝟑
𝟏𝟎𝟎 % − 𝟐 % 𝟎 . 𝟗𝟖
 
Problem Situation:
 

An invoice received by Circuit City, dated March 15,


has a net price of Php98,500 with terms . Find the
latest date a cash discount is allowed and find the
cash discount and net amount.
 
𝑳𝒂𝒕𝒆𝒔𝒕 𝒅𝒂𝒕𝒆 𝒂 𝒄𝒂𝒔𝒉 𝒅𝒊𝒔𝒄𝒐𝒖𝒏𝒕 𝒊𝒔 𝒂𝒍𝒍𝒐𝒘𝒆𝒅 𝒘𝒊𝒍𝒍 𝒃𝒆 𝑴𝒂𝒓 𝟑𝟎 .
 
𝑪𝑫=𝑷𝒉𝒑 𝟗𝟖 , 𝟓𝟎𝟎× ( 𝟎 . 𝟎𝟐 )=𝑷𝒉𝒑 𝟏 , 𝟗𝟕𝟎
 
𝑵𝑨 =𝑷𝒉𝒑 𝟗𝟖 , 𝟓𝟎𝟎× 𝟎 . 𝟗𝟖=𝑷𝒉𝒑 𝟗𝟔 ,𝟓𝟑𝟎
Problem Situation:
 

A 10-horsepower electric motor is list priced at


P21,580 with trade discounts of 20/20 and terms
of . If a retailer takes both of these discounts, find
the net cost of the motor.
 
𝑵𝑷=𝑷𝒉𝒑 𝟐𝟏 , 𝟓𝟖𝟎× 𝟎 . 𝟖× 𝟎 . 𝟖=𝑷𝒉𝒑 𝟏𝟑 , 𝟖𝟏𝟏 . 𝟐
 
𝑪𝑫=𝑷𝒉𝒑 𝟏𝟑 , 𝟖𝟏𝟏 .𝟐 × ( 𝟎 . 𝟎𝟒 )=𝑷𝒉𝒑 𝟓𝟓𝟐 . 𝟒𝟒𝟖
 
𝑵𝑨=𝑷𝒉𝒑 𝟏𝟑 ,𝟖𝟏𝟏 . 𝟐 ×𝟎 . 𝟗𝟔=𝑷𝒉𝒑 𝟏𝟑 , 𝟐𝟓𝟖. 𝟕𝟓𝟐
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