Ch14 sec 5

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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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