UNDERSTANDING

CASH DISCOUNTS
Objectives:
1. To understand the basic concepts of Buying and Selling.
2. To differentiate Markup from Markdown.
3. To illustrate how to compute Trade Discounts.
4. To illustrate how to obtain Profit and avoid loss.
5. To solve problems involving Buying and Selling.
GEAR UP!
Complete the table below.
RATE OF
TRADE
LIST PRICE TRADE NET PRICE
DISCOUNT
DISCOUNT
Php580 7.5% Php43.50 Php536.50
Php6,200 18% Php1,116 Php5,084
Php18,000 28% Php5,040 Php12,960
Php182
1
Php7,800 2 % Php7,618
3
Php28,200 3.5% Php987 Php27,213
WHAT IS A CASH DISCOUNT?

It is a discount offered
by the manufacturer to
the customers who pay
early than the agreed
time of payment.
Parts of Sales Invoice
a) Rate of discount – expressed as a percent of the net
amount.

b)Net amount – the amount trade discounts are

deducted.

c) Discount period – indicates the time period when the

cash discount can be applied.

d)Credit period – indicates the time period when the

invoice must be paid. It is used when the transportation
of goods takes a long time.
 Cash Discount – a discount offered by the manufacturer to the
customers who pay early than the agreed time of payment.

TYPES OF CASH DISCOUNTS

1. Ordinary Dating – the most commonly used method, whereby
payment terms are based on the invoice date.

2. End-of-Month (E.O.M)Dating– the discount or credit period

starts after the end of the current month.

3. Receipt-of-Goods Dating (R.O.G.) – the discount and credit

period start on the day after the merchandise has been
received.
Ordinary Dating – the most commonly used method, whereby
payment terms are based on the invoice date.

Example:
1. A manufacturer who gives a 2% cash discounts on
all bills to be paid 30 days records the term as
follows: 2/10, n/30

A 2% cash discount is allowed if the bill is paid within ten days

from the invoice date, and the net amount of the invoice is
due thirty days from the invoice date.
Ordinary Dating – the most commonly used method, whereby
payment terms are based on the invoice date.

Example:
2. An invoice gives cash discounts based on the
following terms: 2/10, 1/30, n/60

A 2% cash discount is allowed if the bill is paid within ten days

from the invoice date, a 1% discount if paid after ten days and
before thirty days, and the net amount of the invoice is due
sixty days from the invoice date.
End-of-Month(E.O.M)Dating – the discount or credit period
starts after the end of the current month.

Example:
1. The terms 2/10, E.O.M

A 2% discount is allowed if the bill is paid

within 10 days following the end of the
current month.
End-of-Month(E.O.M)Dating– the discount or credit period
starts after the end of the current month.

Example:
2. An invoice dated April 20 with terms 1/10, E.O.M.

It can be paid using the 1% discount if it is

paid by May 10, which is the 10th day after
the end of the month.
Receipt-of-Goods Dating – the discount and credit period
start on the day after the merchandise has been received. It is used
when the transportation of goods takes a long time.

Example:
1. An invoice showing terms 3/10, R.O.G.

It implies that a 3% discount is allowed if the

bill is paid within 10 days after receipt of
goods or merchandise. This means that the
discount period begins on the day the
merchandise arrives.
Receipt-of-Goods Dating – the discount and credit period
start on the day after the merchandise has been received. It is used
when the transportation of goods takes a long time.

Example:
2. An invoice dated September 15 was included with goods
that were received on September 25.If the invoice was
for Php4,000, determine the amount due if the bill
paid;
a) On October 8 and terms were 2/10, E.O.M.
b) On October 8 and terms were 2/10, R.O.G.
c) On October 3 and terms were 2/10, R.O.G.
Example:
2. An invoice dated September 15 was included with goods that were
received on September 25.If the invoice was for Php4,000,
determine the amount due if the bill paid;
a) On October 8 and terms were 2/10, E.O.M.
b) On October 8 and terms were 2/10, R.O.G.
c) On October 3 and terms were 2/10, R.O.G.

a.) The discount 2% can be used anytime before October 10, so the amount due is
Php4,000 less 2%.
b.) The discount of 2% is not allowed because more than 10 days have passed since
the receipt of goods.
c.) The discount of 2% can be claimed because less than 10 days have passed since
the receipt of goods.
Finding the Amount Payable and
Cash Discount
• Amount Payable
Formula(1)
𝑨𝒑 = 𝑵𝒑 − 𝑪𝒅 Where;
Formula(2) 𝑨𝒑 = 𝐴𝑚𝑜𝑢𝑛𝑡 𝑝𝑎𝑦𝑎𝑏𝑙𝑒
𝑨𝒑 = 𝑵𝒑 (𝟏 − 𝑫𝒓 ) 𝑵𝒑 = 𝑁𝑒𝑡 𝑝𝑟𝑖𝑐𝑒
𝑪𝒅 = 𝐶𝑎𝑠ℎ 𝑑𝑖𝑠𝑐𝑜𝑢𝑛𝑡
𝑫𝒓 = 𝐷𝑖𝑠𝑐𝑜𝑢𝑛𝑡 𝑟𝑎𝑡𝑒
• Cash Discount
𝑪𝒅 = 𝑵𝒑 𝑿 𝑫𝒓
Example:
1. The net price of merchandise is Php20,000. The invoice
is dated April 11 with the following terms: 5/15, n/45.
What is the amount payable if the invoice was settled
on;
a) April 25 Solution:
𝑨𝒑 = 𝑵𝒑 (𝟏 − 𝑫𝒓 )
b) April 30 𝑨 = 𝟐𝟎, 𝟎𝟎𝟎 (𝟏 − 𝟎. 𝟎𝟓)
𝒑
𝑨𝒑 = 𝟐𝟎, 𝟎𝟎𝟎 (𝟎. 𝟗𝟓)
Given: 𝑨𝒑 = 𝑷𝒉𝒑𝟏𝟗, 𝟎𝟎𝟎
𝑨𝒑 = ? Thus, the amount payable on April 25 is Php19,000.
𝑵𝒑 = 𝑃ℎ𝑝20,000 𝑪𝒅 = 𝑵𝒑 𝑿 𝑫𝒓
𝑫𝒓 = 5% = 0.05 𝑪𝒅 = 𝟐𝟎, 𝟎𝟎𝟎 𝑿𝟎. 𝟎𝟓
𝑻𝒆𝒓𝒎𝒔 𝒐𝒇 𝒅𝒊𝒔𝒄𝒐𝒖𝒏𝒕: 5/15, n/45 𝑪𝒅 = 𝑷𝒉𝒑𝟏, 𝟎𝟎𝟎
Thus, the cash discount is Php1,000.
 Example:
2. An invoice of Php70,520 dated March 25, terms 5/10,
2/30, n/60, is paid in full on April 20. What is the
total amount paid to settle the account?
Solution:
𝑨𝒑 = 𝑵𝒑 (𝟏 − 𝑫𝒓 )
𝑨𝒑 = 𝟕𝟎, 𝟓𝟐𝟎 (𝟏 − 𝟎. 𝟎𝟐)
𝑨𝒑 = 𝟕𝟎, 𝟓𝟐𝟎 (𝟎. 𝟗𝟖)
Given:
𝑨𝒑 = ? 𝑨𝒑 = 𝑷𝒉𝒑𝟔𝟗, 𝟏𝟎𝟗. 𝟔𝟎
Thus, the amount payable on April 20 is Php69,109.60.
𝑵𝒑 = 𝑃ℎ𝑝70,520
𝑫𝒓 = 2% = 0.02
𝑪𝒅 = 𝑵𝒑 𝑿 𝑫𝒓
𝑻𝒆𝒓𝒎𝒔 𝒐𝒇 𝒅𝒊𝒔𝒄𝒐𝒖𝒏𝒕: 5/10, 2/30, n/60 𝑪𝒅 = 𝟕𝟎, 𝟓𝟐𝟎 𝑿𝟎. 𝟎𝟐
𝑪𝒅 = 𝑷𝒉𝒑𝟏, 𝟒𝟏𝟎. 𝟒𝟎
Thus, the cash discount is Php1,410.40.
Example:
3. An invoice for Php12,800 dated July 16, terms 2/10,
E.O.M., is paid on August 10. What is the amount paid?

Solution:
𝑨𝒑 = 𝑵𝒑 (𝟏 − 𝑫𝒓 )
𝑨𝒑 = 𝟏𝟐, 𝟖𝟎𝟎 (𝟏 − 𝟎. 𝟎𝟐)
Given: 𝑨𝒑 = 𝟏𝟐, 𝟖𝟎𝟎 (𝟎. 𝟗𝟖)
𝑨𝒑 = ? 𝑨𝒑 = 𝑷𝒉𝒑𝟏𝟐, 𝟓𝟒𝟒
𝑵𝒑 = 𝑃ℎ𝑝12,800 Thus, the amount payable on August 10 is Php12,544.
𝑫𝒓 = 2% = 0.02
𝑻𝒆𝒓𝒎𝒔 𝒐𝒇 𝒅𝒊𝒔𝒄𝒐𝒖𝒏𝒕: 2/10, E.O.M. 𝑪𝒅 = 𝑵𝒑 𝑿 𝑫𝒓
𝑪𝒅 = 𝟏𝟐, 𝟖𝟎𝟎 𝑿𝟎. 𝟎𝟐
𝑪𝒅 = 𝑷𝒉𝒑𝟐𝟓𝟔
Thus, the cash discount is Php256.
Example:
4. Nicolas Trading Corporation has received an invoice of
Php84,650 dated May 10, terms 3/10, n/30, R.O.G.,
for a shipment of clocks that arrived on July 15. What
is the last day for taking the cash discount and how
much is to be paid if the discount is taken?

Solution:
𝑨𝒑 = 𝑵𝒑 (𝟏 − 𝑫𝒓 )
Given: 𝑨𝒑 = 𝟖𝟒, 𝟔𝟓𝟎 (𝟏 − 𝟎. 𝟎𝟑)
𝑨𝒑 = ? 𝑨𝒑 = 𝟖𝟒, 𝟔𝟓𝟎 (𝟎. 𝟗𝟕)
𝑵𝒑 = 𝑃ℎ𝑝84,650 𝑨𝒑 = 𝑷𝒉𝒑𝟖𝟐, 𝟏𝟏𝟎. 𝟓𝟎
𝑫𝒓 = 3% = 0.03
Thus, the amount payable on July 25 is Php82,110.50.
𝑻𝒆𝒓𝒎𝒔 𝒐𝒇 𝒅𝒊𝒔𝒄𝒐𝒖𝒏𝒕: 3/10, R.O.G. 𝑪𝒅 = 𝑵𝒑 𝑿 𝑫𝒓
𝑪𝒅 = 𝟖𝟒, 𝟔𝟓𝟎 𝑿 𝟎. 𝟎𝟑
𝑪𝒅 = 𝑷𝒉𝒑𝟐, 𝟓𝟑𝟗. 𝟓𝟎
Thus, the cash discount is Php2,539.50.
 Example:
5. The list price of the merchandise is Php108,000 subject
to 15% and 5% trade discounts. The invoice dated May
18 has terms: 5/10, 3/30, and n/60. Find the
following:
a) Net price
b) Amount paid on June 5
Given: Solution:
𝑨𝒑 = ?
𝑳𝒑 = 𝑃ℎ𝑝108,000 𝑵𝒑 = 𝑳𝒑 (𝟏 − 𝑫𝒓𝟏 ) (𝟏 − 𝑫𝒓𝟐 )
𝑫𝒓𝟏 = 15% = 0.15 𝑵𝒑 = 𝟏𝟎𝟖, 𝟎𝟎𝟎 (𝟏 − 𝟎. 𝟏𝟓) (𝟏 − 𝟎. 𝟎𝟓)
𝑫𝒓𝟐 = 5% = 0.05 𝑵𝒑 = 𝟏𝟎𝟖, 𝟎𝟎𝟎 (𝟎. 𝟖𝟓)(𝟎. 𝟗𝟓)
𝑻𝒆𝒓𝒎𝒔 𝒐𝒇 𝒅𝒊𝒔𝒄𝒐𝒖𝒏𝒕: 5/10, 3/30, n/60 𝑵𝒑 = 𝑷𝒉𝒑𝟖𝟕, 𝟐𝟏𝟎
Thus, the net price is Php87,210.
 Example:
5. The list price of the merchandise is Php108,000 subject
to 15% and 5% trade discounts. The invoice dated May
18 has terms: 5/10, 3/30, and n/60. Find the
following:
a) Net price Solution:
𝑨𝒑 = 𝑵𝒑 (𝟏 − 𝑫𝒓 )
b) Amount paid on June 5
𝑨𝒑 = 𝟖𝟕, 𝟐𝟏𝟎 (𝟏 − 𝟎. 𝟎𝟑)
𝑨𝒑 = 𝟖𝟕, 𝟐𝟏𝟎 (𝟎. 𝟗𝟕)
Given:
𝑨𝒑 = 𝑷𝒉𝒑𝟖𝟒, 𝟓𝟗𝟑. 𝟕𝟎
𝑨𝒑 = ?
𝑵𝒑 = 𝑃ℎ𝑝87,210 Thus, the amount payable on June 5 is Php84,593.70.
𝑫𝒓 = 𝟑% = 𝟎. 𝟎𝟑 𝑪𝒅 = 𝑵𝒑 𝑿 𝑫𝒓
𝑻𝒆𝒓𝒎𝒔 𝒐𝒇 𝒅𝒊𝒔𝒄𝒐𝒖𝒏𝒕: 5/10, 3/30, n/60 𝑪𝒅 = 𝟖𝟕, 𝟐𝟏𝟎 𝑿 𝟎. 𝟎𝟑
𝑪𝒅 = 𝑷𝒉𝒑𝟐, 𝟔𝟏𝟔. 𝟑𝟎
Thus, the cash discount is Php2,616.30.
 MOTIVATION OF THE DAY

Never give up. People will always discount

you, and you’ll always get rejected. But set
your sights high. Be ambitious. Be relentless
and never give up.

- Reshma Saujani