Planning Ahead Inventory is an important part of many businesses. Can you think of problems that might arise from having too much or too little of a product in stock? Lesson Objective Calculate the cash price when the discount is based on end-of-month dating. Content Vocabulary end-of-month dating end-of-month dating Terms of payment on an invoice from a supplier which grants a cash discount if a bill is paid within a certain number of days after the end of the month when the invoice is issued. Example 1 Bob’s Drugstore received the invoice below from General Wholesalers. What is the last day that Bob’s can take advantage of the 4 percent cash discount? What is the last day to pay the invoice? What is the cash discount? What is the cash price? Example 1 (cont.) Example 1 Answer: Step 1 Find the last day a discount can be taken. Date of invoice: July 12. Terms: 4/10 EOM Discount can be taken until August 10, 10 days after the end of July. Example 1 Answer: Step 2 Find the last day to pay the invoice. Terms: 2/10 EOM. The full amount is due 20 days after the discount date. August 10 + 20 = August 30 Example 1 Answer: Step 3 Find the cash discount. Net Price × Cash-Discount Rate $727.05 × 4% = $29.082 or $29.08 Example 1 Answer: Step 4 Find the cash price. Net Price – Cash Discount $727.05 – $29.08 = $697.97 Example 2 It is a common business practice to grant a onemonth extension on invoices dated on or after the 26th of the month. An invoice dated November 27 has terms of 2/10 EOM. Net price is $8,100. The invoice is paid January 9. What is the last day the 2 percent cash discount can be taken and the last day to pay the invoice? Find the cash price using the complement method. Example 2 Answer: Step 1 Find the last day a discount can be taken. Date of invoice: November 27th, which is after the 26th, thus a 1-month extension is granted. A 1-month extension means the discount can be taken until January 10, 10 days after the end of December. The invoice must be paid after the end of December. Example 2 Answer: Step 2 Find the complement of the cash-discount rate. 100% – 2% = 98% Example 2 Answer: Step 3 Find the cash price. $8,100 × 98% = $7,938 Practice 1 Find the last day a discount can be taken and the last day to pay the invoice. Date of invoice: May 26 Terms: 2/10 EOM Practice 1 Answer Last day a discount can be taken: July 10 Last day to pay the invoice: July 30 Practice 2 Find the cash price using the complement method. Net price: $1,280.95 Terms: 3/10 EOM Invoice date: August 11 Invoice paid: August 30 Practice 2 Answer $1,280.95

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# Ch14 sec 5