CHAPTER 8

Trade and Cash

Discounts

Instructor:
Dr.Rehab Alsultan

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8-1 Learning Outcomes

n Find the trade discount using a single trade

discount rate, and the net price using the trade
discount.
n Find the net price using the complement of the
single trade discount rate.

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 Key Terms…
Section 8-1 Single Trade Discounts

n Suggested retail price, catalog price, list price.

– Three common terms for the price at which the
manufacturer suggests an item be sold to the
consumer.
n Trade discount
– The amount of discount that the wholesaler or retailer
receives off the list price, or the difference between
the list price and the net price.

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 Key Terms…
Section 8-1 Single Trade Discounts

n Net price
– The price the manufacturer or retailer pays, or the
list price minus the trade discount.
n Discount rate
n A percent of the list price.

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 Find trade discount using a single trade discount
8-1-1 rate; find net price using the trade discount
Section 8-1 Single Trade Discounts

n List prices and discounts apply the percentage

formula.
– The portion is the trade discount T.
– The rate is the single trade discount rate R.
– The base is the list price L.

T =RL P =RB
Portion (part) = rate (percent) *base (whole)

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 Find trade discount using
HOW TO: a single trade discount rate
Section 8-1 Single Trade Discounts

Identify the single discount rate and the list price.

Multiply the list price by the single discount rate.

Trade discount = rate x list price

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 An Example…
Section 8-1 Single Trade Discounts

Identify the single discount rate and the list price.

Multiply the list price by the single discount rate.

Trade discount = rate x list price

Find the trade discount for a cd player that retails
at $120 and has a trade discount rate of 35%.
Trade discount = 0.35 x $120
Trade discount = $42
What does the $42 mean?
That the wholesaler or retailer will
not pay $42 of the $120 list price.

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 Examples…
Section 8-1 Single Trade Discounts

n Find the trade discount for a rug that lists for

$290 and has a trade discount of 30%.
– $87
n Find the trade discount for styling gel that lists
for $18 and has a trade discount of 15%.
– $2.70

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 EXERCISE SET A

Practice Question 1. Find the trade discount. Round

to the nearest cent.
Item List price Single discount Trade
rate discount
Mountain
bike $149.50 20% ???

Trade discount = $149.50(20%)

= $149.50(0.2) = $29.90

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HOW TO: Use the trade discount
Section 8-1 Single Trade Discounts

Identify the list price and the trade discount.

Subtract the trade discount from the list price.

Trade discount = Rate x List Price

Net Price = List Price – Trade discount

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 An Example…
Section 8-1 Single Trade Discounts

Identify the list price and the trade discount.

Subtract the trade discount from the list price.

Trade discount = Rate x List Price

Find the net price of a desk that lists
Net Price = List Price – Trade discount
for $320 and has a trade discount of 30%.
Trade discount = 0.30 x $320 = $96
Net price = List price – Trade discount
Net price = $320 – $96 = $224
MORE

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 Find the net price using the
8-1-2 complement of the single discount rate
Section 8-1 Single Trade Discounts

n Another method for calculating the net price uses

the complement of a percent.
– The complement of a percent is the difference
between 100% and the given percent.
n The complement of the single trade discount
rate can be used to find the net price.

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 Find the net price using the
HOW TO: complement of the single discount rate
Section 8-1 Single Trade Discounts

Subtract the single trade discount from 100%.

Multiply the list price by the complement
of the single trade discount.

Examples:
Find the net price of a coffee maker that lists
for $20 and has a trade discount rate of 20%.

80% is the complement of 20%

NP = $20 x 0.80 = $16

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 Key Terms…
Section 8-1 Single Trade Discounts

n Complement of percent
– The difference between 100% and the
given percent.

The complement of 30% is 70%.

Examples: The complement of 55% is 45%
The complement of 5% is 95%.

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 Examples
Section 8-1 Single Trade Discounts

n Find the net price of a set of golf clubs that lists

for $1,500 and has a trade discount of 15%.
– $1275

n Find the net price of a bicycle that lists for $102

and has a trade discount of 30%.
– $71.40

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 EXERCISE SET A

Practice Question 2. Find the net price. Round to

the nearest cent.
Item List price Trade discount Net price
Home
gym $279 $49 ???

$279 - $49 = $230

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 EXERCISE SET A

Practice Question 3. Find the trade discount and

net price. Round to the nearest cent.
Item List Price Single Trade Net price
discount discount
rate
Spalding $25 5% ?? ??
golf club

Trade discount = $25(5%) = $25(0.05) = $1.25

Net price = $25 - $1.25 = $23.75

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 EXERCISE SET A

Practice Question 4. Find the trade discount and

net price. Round to the nearest cent.
Item List Price Single Trade Net price
discount discount
rate
Jeep radio $100 17% ?? ??

Trade discount = $100(17%) = $100(0.17) = $17.00

Net price = $100 - $17 = $83.00

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 EXERCISE SET A

Practice Question 5. Find the complement of the

single trade discount rate and net price. Round
the net price to the nearest cent.
Item List Price Single Net price Net price
discount rate
rate
MP3 $399.98 6% ?? ??
player
Complement = 100% - 6% = 94%
Net price = $399.98(0.94) = $375.98

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8-2 Learning Outcomes

n Find the net price applying a trade discount series

and using the net decimal equivalent.
n Find the trade discount applying a trade discount
series and using the single discount equivalent.

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 Key Terms…
Section 8-2 Trade Discount Series

n Trade discount series or chain discount

– Additional discounts that are deducted one after
another from the list price.

Reasons to use discount series include:

To encourage volume purchases
To promote special or seasonal items
To entice a new client

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 Find the net price applying a trade discount
8-2-1 series and using the net decimal equivalent
Section 8-2 Trade Discount Series

n One way to calculate the net price is to make a

series of calculations.
$400(0.2) = $80 $400 - $80 = $320 The first discount is taken on the list
price of $400, which leaves $320.
$320(0.1) = $32 $320 - $32 = $288 The second discount is taken on $320,
which leaves $288.
$288(0.05) = $14.40 $288 - $14.40 = $273.60 The third discount is taken
on $288, which leaves the
net price of $273.60.

n Complements are used to find net prices directly.

– A faster method.

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 Find the net price applying a trade discount
HOW TO: series and using the net decimal equivalent
Section 8-2 Trade Discount Series

An item lists for $400 and has a discount of 20%.

$400 x 0.2 = $80; $400 - $80 = $320
AnTrade
additional discount
discount of by
series step 10% is
step
taken on the previous price.
$320 x 0.1 = $32; $320 - $32 = $288
An additional discount of 5%
is taken on the previous price.
$288 x 0.05 = $14.40; $288 - $14.40 = $273.60

$273.60 is the final price.

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 Can you add the discounts
together and apply it as one?
Section 8-2 Trade Discount Series

If the item has three discounts of

20%, 10% and 5%, can you add them
together and apply a 35% discount?

No!
Each time you apply the additional
discount, the base becomes smaller.
Directly applying a 35% discount would
result in a final price of $260.
$260 ≠ $273.60
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HOW TO: Find the net decimal equivalent
Section 8-2 Trade Discount Series

n Multiply the decimal form of the complement

of each trade discount rate in a series.
n Multiply the list price by the net decimal
equivalent.

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 An Example…
Section 8-2 Trade Discount Series

Find the net price of an order with a list price

of $800 and a trade discount series of 20/10/5.

Find the complement of each

of the trade discount rates.
They are 0.80, 0.90 and 0.95.
Multiply them together.

The net decimal equivalent is 0.684.

Apply the net decimal equivalent to the list price.

NP = 0.684 x $800 = $547.20

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 Examples…
Section 8-2 Trade Discount Series

n A tool set lists for $325 and has a trade discount

series of 20/10/10. Find the net price.
– $210.60

n A dress shirt lists for $125 and has a trade

discount series of 15/10/7.5. Find the net price.
– $88.45

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HOW TO: Use the trade discount
Section 8-1 Single Trade Discounts

Find the single discount equivalent by subtracting the

net decimal equivalent from 1.
Multiply the list price by the
single discount equivalent.

TD = single discount equivalent x list price

Use the single discount equivalent to calculate the

trade discount on a $3,200 lawn tractor
with a discount series of 30/20/10.

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 An Example…
Section 8-2 Trade Discount Series

Find
The
thesingle
net decimal
discountequivalent
equivalent
byismultiplying
0.496;
the complements
apply it to theofprice
eachofdiscount
$3,200. rate.
TD 0.70
= $3,200
x 0.80
x 0.496
x 0.90==$1,587.20
0.504
UseThe
the singlediscount
trade
Subtract discount
the onequivalent
the tractor
net decimal to $1,587.20.
is
equivalent calculate
(0.504) the
trade
from “1”discount
That is
to the theonsingle
findamount a that
$3,200
you lawn
discountdo nottractor
equivalent.
pay.
withThe
a discount series(or
result is 0.496 of 49.6%).
30/20/10.

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 Key Terms…
Section 8-2 Trade Discount Series

n Single discount equivalent

– The complement of the net decimal equivalent.
– It is the decimal equivalent of a single discount
rate that is equal to the series of discount rates.
n Total amount of a series of discounts
– Single discount equivalent x list price.
n Net amount you pay
– Net decimal equivalent x list price.

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 EXERCISE SET A

Practice Question 6. Find the decimal equivalents

of complements, net decimal equivalent, and net
price. Round the net price to the nearest cent.
Item List Trade Decimal Net decimal Net
Price disc. equivalents equivalent price
series of
complements
sunglasses $200 20/10

Decimal equivalents of complements = 0.8 and 0.9;

net decimal equivalent = 0.8(0.9) = 0.72
net price = 0.72($200) = $144
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 EXERCISE SET A

Practice Question 7. Find the decimal equivalents

of complements, net decimal equivalent, and net
price. Round the net price to the nearest cent.
Item List Price Trade Decimal Net decimal Net
disc. equivalents equivalent price
series of
complements
Wii $99.99 15/5

Decimal equivalents of complements = 0.85 and 0.95

net decimal equivalent = 0.85(0.95) = 0.8075
net price = 0.8075($99.99) = $80.74
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 EXERCISE SET A

Practice Question 8. Round to the nearest

hundredth of a percent when necessary.
Net decimal equivalent Net decimal Single discount
equivalent in percent equivalent in
form percent form
0.6835

% form = 0.6835(100%) = 68.35%

Single discount equivalent = 100% - 68.35%
= 31.65%

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 EXERCISE SET A

Practice Question 9. Find the single discount

equivalent in percent form for the discount series
20/10.

0.8(0.9) = 0.72 = 72% net decimal equivalent in

percent form
100% - 72% = 28% single discount equivalent

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 EXERCISE SET A

Practice Question 10. Find the single discount

equivalent in percent form for the discount series
10/5.

0.9(0.95) = 0.855 = 85.5% net decimal equivalent in

percent form
100% - 85.5% = 14.5% single discount equivalent

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 EXERCISE SET A

Practice Question 11. Find the trade discount on a

suit listed for $165 less 12%.
$165(0.12) = $19.80

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 EXERCISE SET A

Practice Question 12. The list price on slacks is

$22, and the list price on jumpers is $37. If Petit’s
Clothing Store orders 30 pairs of slacks and 40
jumpers at a discount rate of 11%, what is the
trade discount on the purchase?
30($22) = $660 slacks; 40($37) = $1,480 jumpers
$660 + $1,480 = $2,140 total list price
$2,140(0.11) = $235.40 trade discount

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 EXERCISE SET A

Practice Question 13. A trade discount series of

10/5/5 is offered on a printer, which is listed at
$800. Also, a trade discount series of 5/10/5 is
offered on a desk chair listed at $250. Find the
total net price for the printer and the chair. Round
to the nearest cent.
0.9(0.95)(0.95) = 0.81225 net decimal equivalent
$800(0.81225) = $649.80 net price of printer
0.95(0.9)(0.95) = 0.81225 net decimal equivalent
$250(0.81225) = $203.06 net price of desk chair
$649.80 + $203.06 = $852.86 total net price
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8-3 Learning Outcomes

n Find the cash discount and the net amount using

ordinary dating terms.
n Interpret and apply EOM and ROG terms.
n Find the amount credited and outstanding balance
from partial payments.
n Interpret freight terms.

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 Find the cash discount and the net
8-3-1 amount using ordinary dating terms
Section 8-3 Cash Discounts and Sales Terms

n Bills are often due within thirty days from the

date of the invoice.
– To encourage prompt payment, companies offer an
incentive of a cash discount if the invoice is paid
within a specified period.

2/10 n/30 means “take a 2% cash discount

if paid within 10 days; pay the net price
if paid within 30 days”.

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HOW TO: Find the cash discount
Section 8-3 Cash Discounts and Sales Terms

Find the cash discount for an invoice dated

December 1 for $1,500 with terms of 2/10 n/30.
If the invoice is paid on December 9th, for
example, the payment would include the
discount and the amount would be $1,470.
If the invoice is paid on or after December 11th,
the amount to pay would be $1,500.

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 Examples…
Section 8-3 Cash Discounts and Sales Terms

n Annie’s Plants has received an invoice for $450

for potting soil dated November 3 with terms of
5/10 n/30. If the invoice is paid on November
12, how much would Annie’s pay?
– $427.50
n What if the bill is paid on November 30?
– They would not be able to take the discount and
would have to pay the full amount of $450.

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HOW TO: Find the cash discount
Section 8-3 Cash Discounts and Sales Terms

n To calculate the exact number of days for a cash

discount, you must know how many days are in
each month, so if you are not sure…learn them.
– Using a chart is usually the most reliable.

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HOW TO: Find the cash discount
Section 8-3 Cash Discounts and Sales Terms

An invoice of $500 which reads 2/10 n/30 tells

you that a discount of 2% is available if
the payment is made within 10 days.
To calculate the net amount directly, use the
complement of the discount (in this case, 0.98)
and multiply it by the total amount.
$500 x 0.98 = $490 = net amount to be paid

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 An Example…
Section 8-3 Cash Discounts and Sales Terms

Sycamore Enterprises received a $1,248 bill

for computer supplies dated September 2,
with sales terms of 2/10, 1/15, n/30.
A 5% penalty is charged after 30 days.
Find the amount due for the following dates:
September 12, September 15, October 1, October 3.

September 12 (2% discount) = $1,223.04

September 15 (1% discount) = $1,235.52
October 1 (no discount) = $1,248.00
October 3 (5% penalty) = $1,310.40

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 Interpret and apply EOM
8-3-2 (End-of-Month) Terms
Section 8-3 Cash Discounts and Sales Terms

n An invoice might be 2/10 EOM—meaning a 2%

discount is allowed if the bill is paid during the
first month or up until 10 days of the month after
the month on the date of the invoice.
– If the invoice is dated November 19, then the 2%
discount is allowed up to and including December 10.

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 Examples…
Section 8-3 Cash Discounts and Sales Terms

n An invoice dated March 4, with terms of 3/15 EOM.

– A 3% discount would be applicable until April 15.
n An August 25 invoice with terms of 5/10 EOM.
– A 5% discount would apply until September 10.
n December 2 with terms of 2/20 EOM.
– 2% discount until January 20.

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 EOM (End-of-Month) terms
Section 8-3 Cash Discounts and Sales Terms

n An exception occurs when the invoice is dated on

or after the 26th of the month.
– The discount would be applicable until the specified
day of the month following the month of the invoice.

An invoice dated April 27

with terms of 3/10 EOM would be
eligible for the discount if the bill
is paid on or before June 10.

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 Interpret and apply ROG
8-3-3 (Receipt-of-Goods) Terms
Section 8-3 Cash Discounts and Sales Terms

n A cash discount is allowed when the bill is paid

within the specified number of days from the
receipt of goods.
– Not from the date of the invoice.
Multiply the invoice amount times
the complement of the discount rate.
n Sales terms stating 1/10 ROG means that a 1%
discount is applicable 10 days after the goods
are received,
– Not when the invoice is dated.
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 An Example…
Section 8-3 Cash Discounts and Sales Terms

n Judy’s Fine Jewelry received an invoice for 50

silver charm bracelets for a total of $550. The
invoice is dated April 1. She received the
bracelets on April 6. If the terms are 3/10 ROG
and the invoice is paid on April 11, how much
will she pay?
– $533.50

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 Find the amount credited and the
8-3-4 outstanding balance from partial payments
Section 8-3 Cash Discounts and Sales Terms

n A company sometimes cannot pay the full amount

due in time to take advantage of a cash discount.
– Most sellers allow buyers to make a partial payment
and still get a partial cash discount.

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Section 8-3 Cash Discounts and Sales Terms

n In applying the percentage formula to find the

amount credited:
– The rate is the complement of the discount rate.
– The percentage is the partial payment.
– The amount credited is the base.

B = P/R

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 Key Terms…
Section 8-3 Cash Discounts and Sales Terms

n Partial payment
– A payment that does not equal the full amount of the
invoice less any cash discount.
n Partial discount
– A cash discount applied only to the amount of the
partial payment.
n Amount credited
– The sum of the partial payment and the partial
discount.
n Outstanding balance
– The invoice amount minus the amount credited.
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 An Example…
Section 8-3 Cash Discounts and Sales Terms

If the Semmes Corporation received a $875

invoice with terms of 3/10 n/30 and could not
pay the full amount within 10 days, but chose
to send in a $500 partial payment on Day 5,
what amount was credited to their account?
B (amount credited) = P (partial payment) divided
by R (complement of the discount rate)
B = 500/0.97= $515.46 = amount credited

The balance would be the difference.

$875 - $515.46 = $359.54 = balance
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8-3-5 Interpret freight terms
Section 8-3 Cash Discounts and Sales Terms

n Manufacturers rely on a wide variety of carriers

(truck, rail, ship, plane, etc.)
– Terms of freight shipment are indicated on
a bill of lading
– Freight payment terms are usually specified on the
manufacturer’s price list.

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 Key Terms…
Section 8-3 Cash Discounts and Sales Terms

n Bill of lading
– A shipping document that includes a description of the
merchandise, the number of pieces, weight, name of
the consignee (sender), destination, and method of
payment of freight charges.
n FOB (Free On Board ) shipping point
– Buyer pays for shipping when shipment is received.
n Freight collect
– The buyer pays the shipping when the
shipment is received.

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 Key Terms…
Section 8-3 Cash Discounts and Sales Terms

n FOB destination:
– The seller pays the shipping when the
merchandise is shipped.
n Freight paid
– The seller pays the shipping when the
merchandise is shipped.
n Prepay and add
– The seller pays the shipping when the merchandise
is shipped; but, the shipping costs are added to the
invoice for the buyer to pay.

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 An Example…
Section 8-3 Cash Discounts and Sales Terms

The Home Doctor received a shipment of hand tools

with an invoice total of $800 (including shipping) and
sales terms of 3/10 n/30. The invoice is dated June 2
and the shipping costs are $125. Calculate the
payment of the invoice if it is paid on June 10.

Remember that cash discounts do not apply to shipping costs!

Subtract the shipping charges: $800 – 125 = $675

Apply the discount: $675 x 0.97 = $654.75
Add the shipping charges back in:
$654.75 + 125 = $779.75 = amount to be paid
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 EXERCISE SET A

Practice Question 14. Beverly Vance received a bill

dated March 1 with sales terms of 3/10, n/30.
What percent discount will she receive if she pays
the bill on March 5?
3% discount
Practice Question 15. Christy Hunsucker received
an invoice for $650 dated January 26. The sales
terms in the invoice were 2/10 EOM. She paid the
bill on March 4. How much did Christy pay?
$650(0.98) = $637

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 EXERCISE SET A

Practice Question 16. An invoice for $1,200 is

dated on June 3, and terms of 3/10, n/30 are
offered. A payment of $800 is made on June 12,
and the remainder is paid on July 12. Find the
amount remitted on July 12 and the total amount
paid.
$800
Amount credited = = $824.74
0.97

Balance paid on July 12 = 1,200 - $824.74 = 375.26

Total paid = $800 + $375.26 = $1,175.26
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Practice Test

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 PRACTICE TEST

2. The list price of a television is $560. The trade

discount is $27.50. What is the net price?
$560 - $27.50 = $532.50 net price

4. One distributor lists a chair for $250 less 20%.

Another distributor lists the same chair at $240 less
10%. Which distributor offers the better deal?
250(0.2) = $50 discount
250 - 50 = $200 net price better price
240(0.1) = $24 discount
240 - 24 = $216 net price

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 PRACTICE TEST

6. Find the single discount equivalent for the discount

series 20/20/10.
Net decimal equivalent: 0.8(0.8)(0.9) = 0.576
Single discount equivalent: 100% - 57.6% = 42.4%

8. What is the complement of 15%?

100% - 15% = 85%

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 PRACTICE TEST

10. A retailer buys 30 electric frying pans listed at $40

each for 10% less than the list price. How much
does the retailer have to pay for the frying pans?
30($40) = $1,200 total list price
$1,200(0.1) = $120 discount
$1,200 - $120 = $1,080 net price
12.Shareesh Raz received a bill dated September 1
with sales terms of 3/10, 1/15, n/30. What percent
discount will she receive if she pays the bill on
September 6?
3% discount if she pays on or before September 11.
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 PRACTICE TEST

14. Gladys Quaweay received a bill for $300 dated

April 7. The sales terms on the invoice were 2/10
EOM. If she paid the bill on May 2, how much did
she pay?
2% discount if paid on or before May 10
Discount = $300(0.02) = $6.00
Net amount = $300 - $6 = $294.00

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 PRACTICE TEST

16. Zing Manufacturing lists artificial flower

arrangements at $30 less 10% and 10%. Another
manufacturer lists the same flower arrangements
at $31 less 10%, 10%, and 5%. Which is the better
deal?
Zing: $30(0.9)(0.9) = $24.30 net price
Other: $31(0.9)(0.9)(0.95) = $23.85 net price better
deal

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 PRACTICE TEST

18. Campbell Sales purchased merchandise worth

$745 and made a partial payment of $300 on day
13. If the sales terms were 2/15, n/30, how much
was credited to the account? What was the
outstanding balance?
$300
= $306.12 credit to account
0.98
$745 - $306.12 = $438.88 outstanding balance

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 PRACTICE TEST

20. The monogrammed items purchased by Dean

Specialty Company are shipped by rail from the
manufacturer. The bill of lading is marked “FOB
destination.” Who is responsible for paying freight
expenses?

Manufacturer

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