Buying and Selling Concepts

(Part 2)
Lesson 5
Objectives:
o Compute for the net invoice price (NIP) using as single trade discount.
o Compute for the NIP using a discount series.
o Compute for a single equivalent discount rate for a discount series.
o Compute for the NIP rate obtain the NIP using the said rate.
1. Trade Discounts
• It is a reduction from list price granted to buyers. It could take the form of volume
discounts for large purchases, dealer's or distributor's discounts, or special discounts
granted at the discretion of the seller.

• It could either be single discount or a series of discount.

Single Discount

• Computing for discounts makes use of our basic percentage formula P = B R where the
base is the list price, the rate is the discount rate, and the percentage is the discount.

• As such, P = B R
Discount= List Price x Discount Rate
Example:
Compute the discount for an item with a list price of P1 250.00 subject to a 15% discount.
What is its net invoice price?

Given: List Price= P1 250.00, Discount Rate = 15%

Find: Discount, Net Invoice Price
Solution: Discount = List Price x Discount Rate
(P1 250)(15%)
P187:50
Net Invoice Price = List Price - Discount
= P1 250.00 - P187.50
= P1 062.50
Another way of computing for the net invoice price is to multiply the list price by the net invoice
price rate. The net invoice price rate is equal to 100% less the discount rate. Thus,
Net Invoice Price Rate = 100% - Discount Rate
= 100% - 15%
= 85%
Net Invoice Price = List Price x NIP Rate
= P1 250.00 x 85%
= P1 062.50
To get the discount, we deduct the net invoice price from the list price:
Discount = List Price - Net Invoice Price
= P1 250.00 - P1 062.50
= P187:50
Series of Discounts

• In certain instances, seller grants additional discounts other than the discount ordinarily given by
him/her. For instance, aside from the regular 10% discount, a seller may grant a special additional
discount of 5%. The series of discount is, therefore, 10% and 5%. This is not, however, equivalent
to 15% as we shall see later.

Example: Compute for the discount and the net invoice price if an item listed at P1 250 is
given a 10% and a 5% discount.

Given: List Price = P1 250.00, Discount Rates = 10% and 5%

Find: Discount, Net Invoice Price
2. Cash Discounts
• The rate of cash discount is shown under the terms of payment granted by the seller to
the buyer. These terms of sale/purchase are expressed as 2/10, 1/15, n/60, n/eom,
n/45.

• It is the sales discount granted by the seller to the buyer. For the buyer, it is his/her
purchase discount.

• n/eom means that the buyer has to pay the net invoice price by the end of the month of
purcahse.

• n/45 means the buyer has 45 days from the date of purchase to pay his/her account.
These terms do not grant cash discounts.