#1.3 : Trade Discounts and Cash Discounts Flashcards
Why do businesses provide discounts?
To boost sales, encourage to frequently buy, and pay credit early.
What is the effect of not learning more about discounts?
It can bring more loss and expense to the business.
It refers to an amount or percentage deducted from the normal selling price of goods.
Discounts
Two types of discounts
Trade and Cash
It is offered when a buyer purchases in large quantities (bulk)
Trade discount
Trade discount formula
D = L (1-t)
What does D, L and t mean?
D = discounted price, L = list price, and t = discount rate in decimal
Formula for finding L and t
L = D/(1-t) , t = D/L - 1
Discount in series.
Multiple discounts
Why is there a multiple discounts?
Buyers may tend to be attracted more to a proposal that offers not just one discount but multiple discounts.
Multiple discount formula
D = L (1 – t1) (1 – t2) (1 – t3) …. (1 – tn)
Discount given by a supplier to buyers paying “within” a specified time.
Cash discounts
Three Types of Cash Discount
Ordinary Dating, Receipt of Goods (ROG), and End of Month (EOM)
Cash discount formula
CD = P*R
What does CD, P, and R mean?
CD = Cash Discount , P = purchase price , R = rate
Start counting the days from the “invoice date”.
Ordinary Dating
What does the term 5/5, 2/15, n/30 mean?
5% within 5 days, 2% within 15 days, no discount within 30 days
Start counting the days from the “receipt date”.
ROG (Receipt of Goods)
The end of the discount period depends on whether the invoice is dated “1st to 25th day of the month” or “after the 25th day of the month”.
EOM (End of Month)
