Invoices, Trade Discounts and Cash Discounts | Summary and Q&A

TL;DR

This content explains the purpose of invoices in business transactions and how trade discounts are calculated.

Questions & Answers

Q: What is the purpose of an invoice in business transactions?

An invoice serves as a comprehensive record of a sales transaction, tracking the sales and purchases of merchandise throughout the distribution channel.

Q: How are shipping charges handled in invoices?

Shipping charges can be handled differently based on the shipping terms. FOB shipping point means the buyer pays the shipping company directly, while FOB destination means the seller pays the shipping charges and bills the buyer on the invoice.

Q: How are invoices extended and totaled?

Invoices are extended by multiplying the number of items with the cost per item for each line, and the extended totals are then added together to calculate the subtotal. The subtotal is then adjusted for shipping charges and other adjustments to obtain the total amount due.

Q: What are trade discounts and how are they calculated?

Trade discounts are reductions from the manufacturer's suggested list price given to businesses in the trade channel. The trade discount amount is calculated by multiplying the list price with the trade discount rate.

Summary & Key Takeaways

• Invoices are used to track sales and purchases in a business, containing important information and abbreviations related to merchandise quantities and measurements.

• FOB shipping point and FOB destination are two common shipping terms that determine who pays for shipping charges and when the merchandise title is transferred.

• Invoices can be extended and totaled by multiplying the units or quantities with the cost per item and then adding them together to calculate the subtotal and total amounts.