Calculating the sale price of an item is one of the few math problems that most people will actually

use after high school.

Nevertheless, many of us don’t know how to do it. Not knowing what the price will be at checkout is frustrating. And not
knowing how to help customers is even more frustrating. Thankfully, there are some tricks to make it easier.

Discounts are usually given as a percentage off an original price. So, the trick to finding a discount is in knowing how to
find the percentage of a number. Thankfully, again, sale prices are given as round numbers so they’re not too hard to
figure out.

DISCOUNTS

Discount is the amount deducted from the selling price of a product or service. Companies give discounts for several
reason, like how they do mark down. Discounts may be given to anew costumer to encourage repeat purchase of product
in bulk, to reward or to give incentive to loyal costumer, to clear inventory of old stock, and many more.

TYPE OF DISCOUNTS

Discounts can be classified into the following:

Trade Discount

A trade discount is a discount that is taken off of the retail or published price of products. Such discounts are often offered
to companies that buy in bulk or meet the conditions of a special. This discount could also be offered on services. For
instance, shipping companies frequently offer trade discounts to customers who ship a high volume of shipments. Think
about Lazada/ Shopee and the huge volume of packages they ship on a daily basis. Because they have such high volume,
shipping companies will offer substantial trade discounts to Lazada/ Shopee in hopes of becoming their selected shipper.

A trade discount is an amount deducted from the list price or price tag. It is the product of the discount rate and the list
price. The list price is the suggested retail price determined by the manufacturer or distributor and listed in their product
list or catalogue. The amount of the trade discount will depend on the trade discount rate.

Trade Discount = List Price × Trade Discount Rate

The price after deducting the trade discount is known as the Net Price.

Net Price = List Price − Trade Discount

Hence,

Net Price = List Price − (List Price × Trade Discount Rate)

Net Price = List Price(1 − Trade Discount Rate)

Example: Find the net price of a tablet that is listed at ₱8 398 and has a trade discount rate of 12%.

Solution:

Trade Discount = List Price × Trade Discount Rate

= ₱8 398 × 0.12 = ₱1 007.76
 Net Price = List Price − Trade Discount
= ₱8 398 − ₱1 007.76 = ₱7 390.24

or Net Price = List Price(1 − Trade Discount Rate)

= ₱8 398(1 − 0.12)
= ₱8 398(0.88)
= ₱7 390.24

o Single Trade Discount and Discount Series

As a business owner, you are always on the hunt for ways to attract more customers who will remain loyal buyers for
many years. But there are different strategies you can implement to achieve this goal. Some businesses choose a low-
price, high volume strategy, while other businesses target high-income customers by offering exclusive products. One of
the most effective strategies is to offer trade discounts and discount series. Businesses often offer a variety of discounts
to customers to encourage purchases of products or to encourage volume purchasing as well as to incentivize customers
to make payments on time. You can structure your discounts in a number of ways but trade discounts and discount series
are time-tested and effective means of boosting revenue.

Single trade discounts are commonly known as “one-off” discounts that your business offers to customers or clients when
their purchases meet a specific condition that would trigger that discount. The condition is one that you set but it can
include buyers who pay in cash, buyers who purchase in bulk or buyers who make purchases during a specific promotional
time period. For example, if you run an automotive parts business, you could offer a retailer a 10 percent discount if the
retailer orders 30 000 or more worth of merchandise. This is a one-off because the discount only applies if the retailer can
meet the specific condition that you’ve established.

A discount series refers to a discount that you offer based on a number of different conditions. Rather than just offering
the discount after one condition is met, the discount series requires purchasers to meet different conditions at different
times. For example, let’s say you sell wholesale auto parts. You might offer a 20/10/5 split in which you provide a 20
percent discount as a promotion, a 10 percent discount if the client buys at a certain volume, and a five percent discount
if payment is made within 30 days. It’s important to remember, however, that in a discount series the buyers won’t receive
each discount unless that specific condition is met. So, in the above example, the buyer would receive 20 percent off the
top but would only receive the additional 10 percent if it bought a specific number of items, and the five percent if the
payment were made within 30 days. In that 20/10/5 split, the 20 percent is taken off the entire purchase amount, while
the 10 percent is deducted from what remains, and the five percent deducted from what’s left over after the 10 percent
is deducted.

The primary difference between a single trade discount and discount series is that there are more conditions buyers must
meet in a discount series to take full advantage of the reduction. In the single discount formula, the calculation is pretty
straightforward. For example, if the discount offered is 35 percent and the total value of the goods sold are ₱100,000, the
single discount formula would be: ₱100,000 x 35% (0.35) = ₱35,000 discount. In contrast to the single discount formula,
however, the discount series yields a lower discount. The effective 20/10/5 discount is found by applying each discount
successively. Using the previous example, the 20 percent discount reduces the ₱100,000 owed to ₱80,000; the 10 percent
discount reduces the remaining ₱80,000 to ₱72,000; and the five percent discount reduces the remaining ₱72,000 owed
to ₱68,400, making the total discount equal to ₱31,600. As you can see, the discount series would be ₱4,400 less than
what was used applying the single discount formula.
 Net Price = List Price[(1 − 1st Discount Rate)(1 − 2nd Discount Rate)(1 − 3rd Discount Rate) … (1
− nth Discount Rate)]
Equivalent Single Rate of Discount
=1
− [(1 − 1st Discount Rate)(1 − 2nd Discount Rate)(1 − 3rd Discount Rate) … (1
− nth Discount Rate)]

Example: Find the net price of a smartphone listed for ₱10 750.00 and has a trade discount series of 15/10/15. What is
the equivalent single rate for this discount series?

Solution:

Solve first the net price

Net Price = List Price[(1 − 1st Discount Rate)(1 − 2nd Discount Rate)(1 − 3rd Discount Rate)]
= ₱10 750[(1 − 0.15)(1 − 0.10)(1 − 0.05)]
= ₱10 750[(0.85)(0.90)(0.95)]
= ₱10 750(0.72675)
= ₱7,812.56

Then solve for the equivalent single rate of discount.

Equivalent Single Rate of Discount = 1 − [(1 − 1st Discount Rate)(1 − 2nd Discount Rate)(1 −
3rd Discount Rate)]

Equivalent Single Rate of Discount = 1 − [(1 − 0.15)(1 − 0.10)(1 − 0.05)]

Equivalent Single Rate of Discount = 1 − [(0.85)(0.90)(0.95)]
Equivalent Single Rate of Discount = 1 − (0.72675)
Equivalent Single Rate of Discount = 0.27325 or 27.33%

Cash Discount

Cash discount is applied on the net price, the price after all trade discounts have been deducted. The amount of cash
discounts will depend on dating methods used, and the terms and date of payment stated. The dating methods can be
ordinary (invoice date), at the end of the month, or upon receipt goods. Terms of payment may be given as 10/15, 5/30,
or n/60. 10/15 means that the customer will get 10% cash discount if she/ he pays within 15 days; 5/30 means that the
customer will receive 5% cash discount if he or she pays within 30 days; and n/60 means that the customer will pay the
net amount in full within 60 days. The price after deducting any cash discount is the selling price.

The following formula can be used in computing cash discount and selling price.

Cash Discount = Net Price × Cash Discount Rate

Selling Price = Net Price − Cash Discount
Selling Price = Net Price(1 − Cash Discount Rate)

Many manufacturers and wholesalers allow customers to take a cash discount, a reduction of the amount due on an
invoice to encourage prompt payment of the bill. Calculating the cash discount can be tricky since you need to know how
to count the exact number of days for which the discount is offered. Knowing if a month has 30 or 31 days (or 28 in the
case of February) is important. The knuckle method is often useful:
There are usually three methods to calculate cash discounts: Ordinary Dating, End of Month (EOM) Dating and Receipt of
Goods (ROG) Dating.

Ordinary Dating Method

Many firms offer credit terms 2/10, n/30 (read as “two ten, net thirty”). This means you get a 2% discount if you pay within
10 days of receiving the invoice. You must pay the bill within 30 days or you start to incur interest charges.

Remember: Start counting the days on the day after the date on the invoice.

Example: Laura received an invoice of ₱3 060.50 dated May 31, terms 3/15, n/30. She paid it in full on June 14. What
amount did she pay?

Solution:

Date of invoice ∶ May 31

Day 1 of the discount period: June 1
Last day of the discount period: June 15
Date of payment ∶ June 14 (customer will get a discount)

A discount of 3% will be given since the invoice was paid within 15 days.

Cash Discount = Net Price/Invoice Price × Cash Discount Rate

Cash Discount = ₱3 060.50 × 0.03 = ₱91.815

Laura’s Payment = Invoice Price − Cash Discount

Laura’s Payment = ₱3 060.50 − ₱91.82 = ₱2 968.69

End of Month Dating Method

Sometimes the sales terms read 2/10 n/30 E.O.M., where E.O.M. stands for “end of month”. This means you get a 2%
discount if you pay within the first 10 days of the next month. You must pay the bill within the first 30 days of the next
month or you start to incur interest charges.

Remember: Start counting the days from the 1st day of the next month after the invoice is received.

Example: Newman, Inc. received an invoice for ₱1 500.65 dated June 05, terms 2/10 E.O.M. The invoice is paid on July 10.
What is the amount paid?

Solution:

Date of invoice: June 05

Day 1 of the discount period: July 1
Last day of the discount period: July 10
 Date of payment: July 10

Cash Discount = Net Price/Invoice Price × Cash Discount Rate

Cash Discount = ₱1 500.65 × 0.02 = ₱30.013

Newman’s Payment = Invoice Price − Cash Discount

Newman’s Payment = ₱1 500.65 − ₱30.013 = ₱1 470.64

Receipt of Goods Dating Method

Many firms issue credit terms based on the day goods are received instead of the invoice date. The terms may be written
as 2/10 R.O.G., where R.O.G. stands for “receipt of goods”. This means you get a 2% discount if you pay within the first 10
days after the goods are received.

Remember: Start counting the days the day after the goods is received.

DMG, Inc. received an invoice of ₱4 750 dated January 10, terms 2/10 n/30 R.O.G., for a shipment that arrived on February
05. What is the last day for taking the cash discount?

Solution:

Date of invoice January 10

Day 1 of the discount period February 06
Last day of the discount period February 15

PARTIAL PAYMENTS

Most sellers allow buyers to make partial payments and take advantage of the discount terms if the partial payment is
made within the time specified in the credit terms. When this happens, the discount terms apply only to the partial
payment. Again, use your common sense, when a customer takes advantage of the cash discount, it means they should
be credited MORE on their invoice than they actually pay.

Will Simms, Inc. received an invoice of ₱15,700 for computer hardware with terms of 4/10, n/30. They sent a cheque for
₱5,000 within 10 days of receiving the invoice. What amount was Will Simms, Inc. credited on his invoice? What is the
balance owing?

Solution:

Cash Discount = ₱15 700 × 0.04

Cash Discount = ₱15 700 × 0.04 = ₱628

Will Simms′ Initial Payment = (1 − Cash Discount Rate)(Amount Credited)

₱5,000 = (1 − 0.04)(Amount Credited)
₱5 000 (0.96)(Amount Credited)
0.96
= 0.96
₱5 208.33 = Amount Credited