sales discount

(noun)

reduced payment from the customer based on invoice payment terms

Related Terms

Examples of sales discount in the following topics:

  • Recording Sales

    • Net sales are gross sales minus sales returns, sales allowances, and sales discounts.
    • 2/10, n/30 (2% discount if paid within 10 days, net invoice total due in 30 days).
    • Sales - Sales Return & Allowances - Sales Discount = Net sales
    • A discount from list price might be noted if it applies to the sale.
    • Net sales are gross sales minus sales returns, sales allowances, and sales discounts.

  • Sales Forecast Input

    • For financial ratios that use income statement sales values, "sales" refers to net sales, not gross sales.
    • A discount from list price might be noted if it applies to the sale (discount expense debit).
    • Gross sales are the sum of all sales during a time period.
    • Net sales are gross sales minus sales returns, sales allowances, and sales discounts.
    • sales discounts allowed are reduced payments from the customer based on invoice payment terms such as 2/10, n/30 (2% discount if paid within 10 days, net invoice total due in 30 days)

  • Setting a Credit Policy

    • A restrictive policy will most likely result in lower sales, but the firm will have a smaller investment in receivables and incur less bad-debt losses.
    • If a discount is offered, the amount of the discount must also be determined.
    • There are many purposes for discounting, such as to move out-of-date stock, to reward valuable customers, as a sales promotion, or to reward behaviors that benefit the discount issuer.
    • Some common types of discounts include:
    • Seasonal discount (for orders placed in a slack period for example).

  • Overview of Merchandising Operations

    • Merchandising is any practice which contributes to the sale of products to a retail consumer.
    • In the broadest sense, merchandising is any practice which contributes to the sale of products to a retail consumer.
    • This includes disciplines and discounting, physical presentation of products and displays, and decisions about which products should be presented to which customers at what time.This annual cycle of merchandising differs between countries and some times within them.
    • Presidents' Day sales are held shortly thereafter.
    • Merchandising is any practice which contributes to the sale of products to a retail consumer.

  • Terms of Trade

    • The debtor is free to pay before the due date, and some businesses offer a discount for early payment.
    • A discount can be offered and stated as "2/10, net 30".
    • The operator may sign a franchising agreement, under which the distributor agrees to provide ice cream stock under the terms "Net 60" with a ten percent discount on payment within 30 days, and a 20% discount on payment within 10 days.
    • If sales are good within the first week, the operator may be able to send a check for all or part of the invoice, and make an extra 20% on the ice cream sold.
    • However, if sales are slow, leading to a month of low cash flow, then the operator may decide to pay within 30 days, obtaining a 10% discount, or use the money another 30 days and pay the full invoice amount within 60 days.The ice cream distributor can do the same thing, receiving trade credit from milk and sugar suppliers on terms of Net 30, 2% discount if paid within ten days.

  • Valuing the Corporation

    • Valuation is used by financial market participants to determine the price they are willing to pay or receive to perfect the sale of a business.
    • The discount rate and capitalization rate are closely related to each other, but are distinguishable.
    • The CAPM method derives the discount rate by adding a risk premium to the risk-free rate.
    • The weighted average cost of capital is an approach used to determine a discount rate.
    • It is similar in many respects to the "comparable sales" method that is commonly used in real estate appraisal.

  • NPV Profiles

    • The NPV Profile graphs the relationship between NPV and discount rates.
    • The NPV calculation involves discounting all cash flows to the present based on an assumed discount rate.
    • When the discount rate is large, there are larger differences between PV and FV (present and future value) for each cash flow than when the discount rate is small.
    • The independent variable is the discount rate and the dependent is the NPV.
    • It is the discount rate at which the NPV is equal to zero.

  • Pricing a Security

    • This concept of discounting future money is commonly known as the time value of money.
    • The size of the discount is based on the opportunity cost of capital and it is expressed as a percentage.
    • This percentage is the discount rate.
    • Those sales could be shares of stock or sales of entire firms.
    • Normally, the discounted cash flows of a well-performing company exceed this floor value.

  • Expected Dividends and Constant Growth

    • Valuations rely heavily on the expected growth rate of a company; past growth rate of sales and income provide insight into future growth.
    • One must look at the historical growth rate of both sales and income to get a feeling for the type of future growth expected.
    • They may have been growing earnings at 10 - 15% over the past several quarters / years because of cost cutting, but their sales growth could be only 0 - 5%.
    • The Gordon model or Gordon's growth model is the best known of a class of discounted dividend models .
    • It assumes that dividends will increase at a constant growth rate (less than the discount rate) forever.

  • Present Value, Multiple Flows

    • Each cash flow must be discounted to the same point in time.
    • If you want to find the PV in 2012, you need to discount the second loan an additional two years, even though it doesn't start until 2014.
    • Things may get slightly messy if there are multiple annuities, and you need to discount them to a date before the beginning of the payments.
    • You then can discount those present values as if they were single sums to 1/1/13.
    • The new product will have start-up expenditures, operational expenditures, and then it will have associated incoming cash receipts (sales) and disbursements (Cash paid for materials, supplies, direct labor, maintenance, repairs, and direct overhead) over 12 years.