Cash Discounts, Freights, Partial

Payments, Total Discounts

Cash Discounts
In most cases, especially in the trade business,
suppliers give their buyers credit period. This credit
period will give time (usually 30, 45, 60 or more days)
to the buyers to settle the payment required. Assuming
the perspective of the buyers is that they might pay
penalties if they will pay beyond the deadline given.
However, if they pay before the deadline, they might
receive additional discounts called cash discounts.
Cash Discounts
Cash discounts are discounts given to the buyers paying
within a specified time.

Unlike trade discount where discount is applied on the

time of transaction, cash discount may only be applied
depending on the date of payment.
Cash Discounts
Cash discounts are discounts given to the buyers paying
within a specified time.

Three Types:
1. Ordinary Dating
2. Receipt of Goods (ROG) Cash Discount
3. End of Month (EOM) Cash Discount
Ordinary Dating
The terms follow the format 𝑑1 /𝑚1, 𝑑2 /𝑚2, …𝑑𝑘 /𝑚𝑘,

where 𝑑𝑘 are the discounts given

𝑚𝑘 are the number of days after the transaction
date
Switch on!
Mr. Mateo received an invoice dated February 16, 2014
amounting to Php 85,000 for his orders of fertilizer. This
invoice comes with the cash discount terms 5/5, 2/15, n/30. If
Mr. Mateo paid on March 1, 2014, how much did he pay?

a. When is the end of the last discount period?

b. When is the end of the credit period?
c. How much did Mr. Mateo pay on March 1, 2014?
In the Gregorian calendar three criteria must be taken into
account to identify leap years:

• The year can be evenly divided by 4;

• If the year can be evenly divided by 100, it is NOT a leap
year, unless;
• The year is also evenly divisible by 400. Then it is a leap year.
On September 21, 2014, Mr. Go ordered some towels
amounting to Php 18,500 prior to any discount. The
supplier offered a 10/10, n/45 cash discount.

a. When is the end of the discount period?

b. When is the end of the credit period?
c. If Mr. Go paid on September 30, 2014, how much did
he pay?
Receipt of Goods (ROG)
The terms follow the format 𝑑1 /𝑚1, 𝑑2 /𝑚2, …𝑑𝑘 /𝑚𝑘,

where 𝑑𝑘 are the discounts given

𝑚𝑘 are the number of days after the goods are
received by the buyer
Switch on!
Mr. Mateo received an invoice dated February 16, 2014
amounting to Php 85,000 for his orders of fertilizer. This
invoice comes with the cash discount terms 5/5, 2/15, n/30,
ROG. The fertilizers were received on February 23, 2014. If Mr.
Mateo paid on March 1, 2014, how much did he pay?

a. When is the end of the last discount period?

b. When is the end of the credit period?
c. How much did Mr. Mateo pay on March 1, 2014?
End of Month (EOM) Cash Discount
The terms follow the format 𝑑1 /𝑚1, 𝑑2 /𝑚2, …𝑑𝑘 /𝑚𝑘,

where 𝑑𝑘 are the discounts given

𝑚𝑘 are the number of days after the end of the
month when the transaction happened.

The end of the credit period is 20 days after the last

discount period.
End of Month (EOM) Cash Discount
Rules in setting the deadlines are different if the
transaction date falls before the 26th of the month
versus the 26th of the month or later.
End of Month (EOM) Cash Discount
1st Case:
Consider 1/10, EOM.
When the invoice is dated 1st to 25th day of the month,
the buyer can take the 1% discount if he pays on or
before the 10th day of the month following the sale. If
the buyer misses the discount period, the full amount,
without discount, is due 20 days after the end of
discount period
End of Month (EOM) Cash Discount
2nd Case:
Consider 1/10, EOM.
If the invoice is dated after the 25th day of the month,
the buyer gains one additional month of credit. The
cash discount ends on the 10th day of the second
month that follows the sale. This is done to guarantee
the 15 days of credit.
Switch on!
Mr. Mateo received an invoice dated February 16, 2014
amounting to Php 85,000 for his orders of fertilizer. This
invoice comes with the cash discount terms 2/10 EOM. The
fertilizers were received on February 28, 2014. If Mr. Mateo
paid on March 1, 2014, how much did he pay?

a. When is the end of the last discount period?

b. When is the end of the credit period?
c. How much did Mr. Mateo pay on March 1, 2014?
Figure it out!
Omega, a local sardines company, supplies canned
sardines to a big flea market in Central Luzon. Last April
26, 2014, Nanay Marie, owner of various stores in the
said market, ordered 600 cans of sardines at Php 11.35
each. She received the good on April 30, 2014. Omega
issued the invoice with terms 2/10, EOM. Nanay Marie
paid on May 16, 2014. Did she receive cash discount?
How much did she pay on May 16, 2014?
Last May 17, 2014, Hann’s Kitchenette ordered
large stainless stock pots worth Php 74,400 prior
to any discount. After exactly one week (May 24,
2014), Hann received the stock pots with the
invoice that comes with terms 3/10, n/30, ROG.
Until when can Hann receive cash discount? If she
is planning to pay on June 1, 2014, how much will
she pay?
Jay-R, a beginning bookkeeper, forgot to put one entry
in his journal: When did he pay the invoice for his
orders of fish meat? However, he remembers that the
invoice amounts to Php 12,075 prior to any discount
but he only paid Php 11,954.25. The invoice was dated
February 24, 2012 that came with the terms 3/10,
1/20, n/30. Help Jay-R remember the date of payment
by giving him the complete range of possible dates.
Freights, Partial Payments,
Total Discounts
Freights
The Philippines has lots of courier companies that can
deliver a piece of document or sacks of rice from one
point of the country to any point in the world. Famous
local couriers are LBC, JRS Express, Air21, 2GO, Xend,
and many others. Delivery of goods can be as quick as a
few hours or as long as 30 days depending on the
nature of the goods and destination.
Freights
In a trade, who should pay these companies for the delivery of
the goods: the buyer or the seller? To be able to answer this
question, you should be familiar with the freight terms that
come with your invoice.

Note:
Freight is the charge paid for carriage or transportation of
goods by air, land and sea.
An invoice is a list of goods sent or services provided with a
statement of the sum due for these.
Freights, Partial Payments, Total Discounts

Two Kinds of Freight Terms:

1. Free on Board (FOB) Destination
2. Free on Board (FOB) Shipping Point
Freights

If the terms are FOB Destination, then the sale

will be completed only when the goods reached
its destination. That is, the seller shoulders the
delivery, transportation, and loading charges.
Freights

If the terms are FOB Shipping Point, the sale will be

complete at a particular shipping point (usually the
origin of goods). The buyer then shoulders the freight
until the goods reached their destination.
Freights

FOB Shipping Point

Case 1: The buyer sends freight payment to the seller
before the start of the delivery
Case 2: The seller prepays the freight, then charges the
buyer. The freight charge is included in the invoice of
the actual goods.
Case 3: The seller prepays the freight, then charges the
buyer. The buyer will receive two invoices: one from
the seller and another one from the courier.
Switch on!
Jairah owns five big barbecue stands in Malabon. She orders
charcoal briquettes from Carmela. Carmela is a supplier of
these briquettes from Bulacan. The invoice amounts to Php
5,400. The shipping fee is Php 720. Terms of the payment are
FOB Bulacan and 2/3 trade discount.

a. Who should pay the shipping?

b. If the shipping is already included in the invoice, how much
should Jairah pay?
Kriza, a Grade 12 student, is earning extra income through
direct selling. She sells cosmetics to her neighbors in Cavite.
She orders from her suppliers in Valenzuela. Last week, she
ordered products worth Php 3,280, prior to any discount.
Yesterday, she received the products and the invoice with the
terms FOB Valenzuela, 18% trade discount. She also received
another invoice amounting to Php 120 for the shipping. How
much should Kriza pay to her suppliers?
You learned from the previous lesson that buyers may
receive cash discounts if paying within a specified
period of time. For some instances, buyers would want
to avail these cash discount but lack resources to settle
the payment. In such cases, whenever agreed by both
the seller and the buyer, partial payments can be done.
Steps for Partial Payments:
Step 1: Compute the complement of the discount rate
applicable.

Step 2: Divide the amount of partial payment by the

complement of the discount rate. This will result to the amount
credited. You will notice here that the credited amount is bigger
than the actual partial payment. As such, this is favorable to the
buyer since a bigger amount will be subtracted from his balance.

Step 3: Subtract the credited amount from the invoice amount

to get the outstanding balance.
Switch on!
Cath is putting up her rice stall in Pasig Mega Market.
She ordered 130 sacks of premium rice at Php 2,450.
She received the invoice dated September 30, 2014
with the terms 3/10, 1/20, n/30. She partially paid Php
100,000 on October 8, 2014. She again partially paid
Php 95,000 on October 15, 2014. She paid the balance
on October 24, 2014. What is her outstanding balance
on October 24, 2014?
Last January 12, 2015, Cyd received an invoice
amounting to Php 84,850 for his orders of rubber mats.
The terms of the payment are 5/10, EOM. He paid Php
35,000 last January 25, 2015 and the remaining on
February 8, 2015.

a. How much did he pay on February 8, 2015?

b. How much are the total discounts received?
Figure it out!
Piper owns a flower shop in Cebu Flower Market. Last
February 2, 2015, she ordered flowers from her
supplier in Davao. The flowers and the invoice
amounting to Php 46,200 arrived at her store last
February 11, 2015. The terms of the payment are 5/10,
2/20, n/30, ROG. She partially paid Php 20,000 and Php
10,000 last February 15, 2015 and February 25, 2015,
respectively. She then paid the remaining balance on
March 5, 2015. How much did she pay on March 5,
2015?
Total Discounts

Freight Trade Cash Partial

Terms Discounts Discount Payment
Paolo makes his own brand of guitar. However, he outsources
his raw materials such as wood and strings from a local
supplier in Albay. Just recently, 5 newly-formed bands ordered
some acoustic guitars from him. Last November 14, 2014, he
ordered wood and strings from his suppliers. The goods
arrived on November 18, 2014. The invoice amounts to Php
29,500 with the terms FOB Albay, 2/2 trade discount and 4/10,
n/30, ROG. Since the supplier prepays the freight, he received
another invoice amounting to Php 1,800 for the shipping fee.
Paolo paid both invoices on November 25, 2014.
a. How much did Paolo pay on November 25, 2014?
b. How much total discounts did Paolo receive?
Kian is importing Japanese bikes and is selling these in a
commercial center in Quezon City. Last January 21, 2015, he
ordered bikes from his contact in Saitama, Japan. The bikes were
delivered on February 4, 2015. Kian received one invoice
amounting to Php 479,500 with the terms FOB Saitama, 8% trade
discount, and 3/10, EOM. The shipping fee of Php 31,500 is
already included in the invoice. Kian partially paid Php 150,000
on February 5, 2015 and another Php 200,000 on February 10,
2015. He paid the remaining balance on March 2, 2015.
a. What is Kian’s outstanding balance on March 2, 2015?
b. How much total discounts did Kian receive?
Figure it out!
Carla just recently opened a small resort in Pandi, Bulacan. To
attract more customers, she wants to put larger than life
statues of famous Marvel superheroes. She ordered statues
from a famous sculptor in Calamba, Laguna. The statues arrived
on March 29, 2015 together with the invoice amounting to Php
784,000. The terms of the payment are FOB Calamba, 5% trade
discount, and 5/10, 2/20, n/60, ROG. The shipping costs Php
40,000 which is already included in the invoice. She partially
paid Php 180,000 on March 31, 2015 and Php 250,000 on April
10,2015. She paid the remaining balance on May 10,2015.
a. How much did Carla pay on May 10,2015?
b. How much total discounts did Carla receive?