TRADE DISCOUNTS

CASH DISCOUNTS
Lesson Objectives

At the end of this lesson, the students should be able to:

1. compute for the net invoice price (NIP) using a single
trade discount;
2. compute for the NIP using a discount series;
3. compute for a single equivalent discount rate for a
discount series; and
4. compute for the NIP rate and obtain the NIP using said
rate.
Lesson Objectives

At the end of this lesson, the students should be able to:

1. explain the meaning of different terms of sale;
2. compute for deadline for discount period;
3. compute for deadline for credit term; and
4. compute for cash discounts and net amount payable.
 Single Discount
P = BR
Discount = List Price Discount Rate

Compute the discount for an item with a list price of ₱1,250

subject to a 15% discount. What is its net invoice price?
Method 1:
Discount = List Price Discount Rate
= ₱1,250 15% = ₱187.50
Net Invoice Price = List Price – Discount
= ₱1,250 - ₱187.50 = ₱1,062.50
 Single Discount
Method 2:
Net Invoice Price (NIP) rate = List Price – Discount
NIP rate = 100% – 15% = 85%
Net Invoice Price = List price NIP rate
= ₱ 85%
= ₱1,062.50
Discount = List price – Net invoice price
= ₱1,250 – ₱1,062.50
= ₱187.50
 Series of Discounts
Compute for the discount and the net invoice price if an
item listed at ₱1,250 is given a 10% and 5% discount.
Method 1:
List price ₱1,250
10% ₱125
Less 10% ₱1,125
5% ₱56.25
NIP (Less 5%) ₱1,068.75
Total discount = ₱125 + ₱56.25
= ₱ 181.25
 Series of Discounts
Method 2:
First discount: 100% – 10% = 90%
First balance: ₱1,250 90% = ₱1,125
Second discount: 100% – 5% = 95%
Net invoice price: ₱1,125 95%
= ₱1,068.75
Discount = List price – Net invoice price
= ₱1,250 – ₱1,068.75
= ₱181.25
 Series of Discounts
Method 3:
(a) 100% – 10% = 90% (b) 100% – 5% = 95%
(a) (b) = 90% 95% = 85.5% (NIP rate)
100% – 85.5% = 14.5% (Single equivalent rate)
Discount = List price Single equivalent discount rate
= ₱1,250 14.5% = ₱181.25
Net invoice Price = List price NIP rate
= ₱1,250 85.5% =₱1,068.75
 Term of Sale/Purchase
The rate of cash discount is shown under the terms
of payment granted by the seller to the buyer.
These terms of sale/purchase are expressed as
,;, ;;.
 Computing Discount Period
and Credit Period
Date of invoice: March 2 Term: ,

1. Deadline for the discount period

Date of invoice March 2
Discount period 10 days
Deadline for discount period March 12
2. Deadline for the credit period
March has 31 days
Less invoice date 2
No. of days in March 29
April 1 Deadline of credit period
Computing for Cash Discounts
Net invoice price: ₱3,060 Invoice date: March 2
Term:
Find: Cash discount and Net amount due

Cash discount = NIP Cash discount rate

= ₱3,060 2%
= ₱61.20
Net amount due = NIP – Cash discount
= ₱3,060 – ₱61.20
= ₱2,998.80
Computing for Cash Discounts
Invoice amount: ₱5,000 Invoice date: September 28
Term:
Find: Cash discount and Net amount due

Cash discount = Invoice amount Cash discount rate

= ₱5,000 3%
= ₱150
Net amount due = Invoice amount – Cash discount
= ₱5,000 – ₱150
= ₱4,850