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Chapter 7: Discounts; Trade and Cash
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Terms in this set (26)
Trade Discount
A reduction off the original selling price (list price) of an item and is not related to early payment.
Cash Discount
The result of an early payment based on the terms of sale.
List Price
Suggested retail price paid by customers.
Trade Discount Amount
The amount of discount that retailers receive off the list price.
List Price x Trade Discount Rate
Invoice
Document recording purchase and sales transactions.
Trade Discount Rate
A percent off the list price that retailers can deduct.
Net Price
Price that the retailer pays the manufacturer or wholesaler.
List Price - Trade Discount Amount
Freight Terms
Determine how freight will be paid. Most common freight terms are FOB shipping point and FOB destination.
FOB Shipping Point
Buyer pays cost of freight in getting goods to his location.
FOB Destination
Seller pays cost of freight in getting goods to buyer's location.
Single Trade Discount
Company gives only one trade discount.
Complement
Difference between the discount rate and 100%.
100% - Trade Discount Rate
Series/Chain Discount
Trade discounts in a series of 2 or more successive discounts.
Net Price Equivalent Rate
When multiplied times the list price, this rate or factor produces the actual cost to the buyer. Rate is found by taking the complement of each term in the discount and multiplying them together (do not round off).
List Price x Net Price Equivalent Rate = Net Price
Single Equivalent Discount Rate
Rate or factor as a single discount that calculates the amount of the trade discount by multiplying the rate times the list price. This replaces a series of chain discounts.
1 - Net Price Equivalent Rate
Terms of Sale
Criteria on invoice showing when cash discounts are available, such as rate and time period.
Credit Period
Credit days are counted from date of invoice. Has no relationship to the discount period.
Discount Period
Amount of time to take advantage of a cash discount.
Due Dates
Maturity date, or when the note will be repaid.
End of Credit Period
Last day from date of invoice when customer can take cash discount.
Ordinary Dating
Cash discount is available within the discount period. Full amount due by end of credit period if discount is missed.
Receipt of Goods (ROG)
Used in calculating the cash discount period; begins the day the goods are received.
End of Month (EOM)
Cash discount period begins at the end of the month invoice is dated. After the 25th discount period, one additional month results.
Trade Discount Amount Formula
List Price x Trade Discount Rate
Net Price Formula
List Price - Trade Discount Amount
OR
List Price x Complement of Trade Discount Price
List Price Formula
Net Price / Complement of Trade Discount Rate
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