Question

A sales invoice included the following information: merchandise price, $6,900; terms 1/10 n/eom; FOB shipping point with prepaid freight of $449 added to the invoice. Assuming that a credit for merchandise returned of $1,400 is granted prior to payment and that the invoice is paid within the discount period, what is the amount of cash that should be received by the seller?

Answer 1

Solution:

Given in Question,

Sale price of Merchandise = $6,900

Sales Return = $1,400

Freight charges = $449

Discount percentage = 1% ( terms 1/10 means 1% discount if paid in 10 days)

Cash received by the seller = [(Sales - Sales return) * (100% - discount rate)] + Freight charges

= [(6900 - 1400) * (100% - 1%)] + 449

= (5500 * 99%) + 449

= 5445 + 449

$5,894

Therefore $5,894 should be received by seller.

Note: Discount on sale is always given on Net sales ie "Sales - Sales Returns"