Chapter 7 Trade Discounts Cash Discounts (and Freight …
[Pages:27]Chapter 7
Trade Discounts Cash Discounts (and Freight Charges)
7-1 McGraw-Hill/Irwin
Copyright ? 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
Distribution Chain
? Manufacturer (General Mills) ? Wholesaler (Certified Grocers)
? Retailer (Pop's Grocery or Ralphs)
7-2
Shipper Receiver A help:
A note:
F.O.B. (free on board)
Pays from shipping point to F.O.B. location.
Pays from F.O.B. location to the destination (most common type of shipping)
Just remember that the buyer pays from the F.O.B point to his own place. Through the process of elimination, you can figure out freight problems in this way. (If the buyer is not paying, then the seller is.)
Keep in mind that the one who pays the freight is really the one who ultimately pays for it. For example, the seller may pay the trucking company to come pick up the product, but he will then, in turn, charge the buyer for the freight charge by putting it on the buyer's invoice. In this way, the buyer is the one who ultimately pays for the freight.
7-3
Shipping Point
F.O.B. Dallas
Destination Point
Fullerton
Seller pays shipping
Dallas
Buyer pays shipping
Atlanta
Fullerton
F.O.B. Atlanta (destination)
Seller pays shipping
Atlanta
F.O.B. Fullerton (shipping point) most common
Fullerton
Atlanta
Buyer pays shipping
7-4
Trade/Cash Discounts
? A Trade Discount is a reduction off the original selling price (list price) of an item and is not related to early payment.
? A Cash Discount is the result of an early payment based on the terms of the sale.
7-5
Invoice
2% discount if paid within 10 days of the invoice date, otherwise the net is due within 30 days (terms of sale)
Irwin/ McGraw-Hill Publ.Co.
Invoice No. 5582
1333 Burr Ridge Parkway
Burr Ridge, Illinois 60521
Date:
July 8, 2006
Ship:
Two-day UPS
Terms: 2/10, n/30
Sold to: North Shore Community College Bookstore
1 Ferncroft Road
Danvers, MA 01923
Description Amount
50 Managerial Accounting - Jones 10 Marketing - McCarthy
Unit list price
$ 95.66 $ 89.50 Total List Price Less: Trade Discount 25% Net Price Plus: Prepaid Shipping Charge Total Invoice Amount
Total
$ 4,783.00 895.00
$ 5,678.00 1,419.50
$ 4,258.50 125.00
$ 4,383.50
7-6
Trade Discount Amount (Step 1 of 2 in Arriving at the Net Price)
List price (MSRP) x Trade discount rate Trade discount amount
$ 5678.00 x .25
$1419.50 Trade discount amount
Example uses a 25% trade discount and a list price of $5,678.00
7-7
Net Price Formula
(Step 2 of 2 in Arriving at the Net Price)
List price - Trade discount amount
Net Price
$5,678.00 - 1,419.50 $4,258.50
Trade discount amount
Example assumes a list price of $5,678.00 and a trade discount amount of $1,419.50.
7-8
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