This is the final part of Cash Discount which dealt with:
- Taking Advantage Of Cash Discount on Partial Payment of Invoices
PARTIAL PAYMENT OF INVOICE & IMPACT ON CASH DISCOUNT
Very simply, if a buyer pays part of the invoice within the discount period, he can only be entitled for proportionate fraction of the Cash discount that is offered.
An invoice dated 2 January 2006 for $6,000 was offered cash discount terms of 1/10, n/30.
If the invoice was partly paid $$3,000 on 10 th January 2006, what was the payment after Cash discount?
As the invoice was paid 8 days after the date of the invoice ie within the discount period, the buyer is entitled to the 1% cash discount BUT THIS TIME he has only partly the amount owing ie $3,000 out of total amount of $6,000
Cash discount simply is Discount x Amount due
If he had made payment of $5,940 ($6,000-$60), he would have received the total Cash discount $60(0.01x$6,000)
As he has only partly ie $3,000
His proportionate fraction entitlement of the Cash discount:
=3,000/(6,000-60) x $60 =$30
Therefore, the amount still owing:
On 20th January 2006, Mr A bought some goods at $100,000 with cash discount term 3/10,n/30.
To pay the invoice on 30 th January, she borrowed the money for 20 days at 10% per annum simple interest.
How much did she save by borrowing to take advantage of the discount?
Cash discount = 3% x $100,000 =$3,000
Principal borrowed =$100,000 -$3,000 =$97,000
Credit period = 30 days â€“ 10 days =20 days
Simple interest calculation:
Principal x interest x time (Prt)
=$100,000 x 10% x 20/360
Net amount saved = Cash Discount â€“ Interest
= $3,000 -$555.56