Terms of the sale n COD and CBD-No Trade Credit: the buyer pays cash on delivery or cash before delivery This reduces the sellers risk under cod to the buyer refusing the shipment or eliminates it completely for CBD n Net Period- No Cash Discount a when credit is extended, the seller specifies the period of time allowed for payment. net 30 implies full payment in 30 days from the invoice date 11-6
11-6 Terms of the Sale Net Period - No Cash Discount -- when credit is extended, the seller specifies the period of time allowed for payment. net 30 implies full payment in 30 days from the invoice date. COD and CBD - No Trade Credit: the buyer pays cash on delivery or cash before delivery. This reduces the seller’s risk under COD to the buyer refusing the shipment or eliminates it completely for CBD
Terms of the sale n Net Period- No Cash Discount - when credit is extended, the seller specifies the period of time allowed for payment and offers a cash discount if paid in the early part of the period. 110, net 307implies full payment within 30 days from the invoice date plus 2% cash discount if paid within 10 days o Seasonal Dating credit terms that encourage the buyer of seasonal products to take delivery before the peak sales period and to defer payment until after the peak sales perio 11-7
11-7 Terms of the Sale Seasonal Dating -- credit terms that encourage the buyer of seasonal products to take delivery before the peak sales period and to defer payment until after the peak sales period. Net Period - No Cash Discount -- when credit is extended, the seller specifies the period of time allowed for payment and offers a cash discount if paid in the early part of the period. ?/10, net 30?implies full payment within 30 days from the invoice date plus 2% cash discount if paid within 10 days
Trade Credit as a Means of Financing What happens to accounts payable if a firm purchases $1, 000/day at net 30? $1, 000 x 30 days= $30,000 account balance What happens to accounts payable if a firm purchases $1, 500/day at net 30? $1, 500 x 30 days=$45, 000 account balance A $15,000 increase from operations 11-8
11-8 Trade Credit as a Means of Financing $1,000 x 30 days = $30,000 account balance What happens to accounts payable if a firm purchases $1,500/day at net 30? $1,500 x 30 days = $45,000 account balance A $15,000 increase from operations! What happens to accounts payable if a firm purchases $1,000/day at net 30?
Cost to Forgo a discount What is the approximate annual cost to forego the cash discount of ? /10, net 30?after the first ten days? Approximate annual interest cost= %o discount X 365 days (100%-% discount (payment date discount period) 11-9
11-9 Cost to Forgo a Discount Approximate annual interest cost = % discount 365 days (100% - % discount) (payment date - discount period) What is the approximate annual cost to forego the cash discount of ?/10, net 30?after the first ten days? X
Cost to Forgo a discount What is the approximate annual cost to forego the cash discount of ? /10, net 30,and pay at the end of the credit eriod? Approximate annual interest cost 2% X 365 days (100%-2%) (30 days- 10 days) =(2/98)x(365/20)=372% 11-10
11-10 Cost to Forgo a Discount Approximate annual interest cost = 2% 365 days (100% - 2%) (30 days - 10 days) = (2/98) x (365/20) = 37.2% What is the approximate annual cost to forego the cash discount of ?/10, net 30,?and pay at the end of the credit period? X