Accounting and Finance Foundations

Unit 10

Accounting and Finance Foundations Unit 10: Credit 760

Credit

Chapter 22

Lesson 22.4

Student Guide

Impact of Credit on Financial Decisions (cont’d)

Question

Assume that a business sold $30,000 worth of goods to various retailers with terms 1/10, n/30. Half of the

total amount was paid within the discount period. What is the amount of discount recorded?

Solution:

$30,000 x 1/2 = $15,000

$15,000 x 1% = $150 discount

To figure the discount date, you must know how many days are in each month. It’s especially important

for credit customers to know the final day of the discount period to send payment in time to receive the

discount. There are several methods for remembering the number of days in each month. A familiar rhyme

to help develop calendar skills is:

Thirty days hath September,

April, June, and November;

All the rest have thirty-one,

Excepting February alone,

And it has twenty-eight days time,

But in Leap Years,

February has twenty-nine.

Fill in the chart with the missing information.

Invoice Date Invoice Amount Terms Discount Due Date Discount Amount

July 20 $650 2/10, n/30

May 28 $1,200 3/10, n/60

November 20 $869 2/20, n/30

January 30 $444 5/10, n/30

Solution:

Invoice Date Invoice Amount Terms Discount Due Date Discount Amount

July 20 $650 2/10, n/30 July 30 $13.00

May 28 $1,200 3/10, n/60 June 7 $36.00

November 20 $869 2/20, n/30 December 10 $17.38

January 30 $444 5/10, n/30 February 9 $22.20