Cash discounts

Cash discounts are not taking on the cost of freight or goods that have been returned to the seller. The cost of these items must be subtracted before a cash discount can be calculated. Example: An invoice date August 1 for $1,150 which includes freight of $150 with terms of 2/10, n/30 with a $100 worth of goods that were returned to the seller on August 6 The invoice was paid on August 10. $1,150 invoice amount – $150 freight cost – $100 return of goods = $900 $900 X (1-.02) = 882 + 150 freight = $1,032 net price paid on August 10. Steps in getting the correct answer are: a. Take the total amount of the invoice $1,150 and subtract the freight cost of 150 which will give the result of $1,000 than subtract the amount of the goods returned to the seller at an earlier date $100 which will result in the $900. b. Multiply the $900 by the complement of the discount (1- the discount rate) to get the net price. c. Take the net price and add back the cost of the freight to get the amount that will be paid on August 10.

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