How a sale happens (sales transaction)
A transaction is one deal where goods or services are exchanged for money. A sale usually goes in six small steps.
- Enquiry: the buyer asks what is available and at what price.
- Quotation: the seller replies with price and terms.
- Order: the buyer says yes and asks for a quantity.
- Delivery and invoice: goods are sent with an invoice, a bill that lists items, quantity, price and the total due.
- Payment: the buyer pays.
- Receipt: the seller confirms the money was received.
A sale for money on the spot is a cash sale. A sale where the buyer pays later is a credit sale.
Settling the payment
Settlement means paying what is due. There are many ways.
- Cash: notes and coins, quick but easy to lose.
- Cheque or bank transfer: money moves between bank accounts and leaves a record.
- Card or mobile payment (like UPI): instant and recorded.
- On credit: pay after a set time, for example 30 days.
To get money sooner, a seller may offer a cash discount: a small cut if the buyer pays early. This is different from a trade discount, which is a cut from the marked price at the time of sale.
Price words: cost, marked, selling, profit, loss
Look at the 3D bars.
- Cost price (CP): what the seller paid.
- Mark-up: the extra amount added to cover costs and earn profit.
- Marked price (MP): CP plus mark-up. It is written on the tag.
- Discount: a cut taken from the marked price.
- Selling price (SP): what the buyer really pays.
If SP is more than CP there is profit. If SP is less than CP there is loss. Profit % and loss % are both found on the cost price.
Business calculation: tax and interest
Two more calculations appear in every business.
Tax on a sale. A sales tax (such as VAT or GST) is a percentage added on top of the price. The seller collects it and passes it to the government. Invoice total = price + tax.
Interest on credit. If money is borrowed or paid late, the lender may charge simple interest: I = P × r × t / 100, where P is the amount, r is the yearly rate in % and t is the time in years. Always turn months into years first (6 months = 0.5 year).
Try it
Pick any item at home. Guess the shop's cost, then use the sliders in the 3D to see what mark-up and discount would give the shop a profit of at least 5%.
Key formulas and definitions
- Profit = SP − CP (when SP > CP); Loss = CP − SP (when CP > SP)
- Profit % = (Profit ÷ CP) × 100; Loss % = (Loss ÷ CP) × 100
- MP = CP × (1 + mark-up% ÷ 100)
- SP = MP × (1 − discount% ÷ 100)
- Invoice total = price + (price × tax rate ÷ 100)
- Simple interest I = P × r × t ÷ 100 (t in years)
Worked examples
1. An item costs 250 and is sold for 300. Find the profit and profit %.
Profit = 300 − 250 = 50. Profit % = 50 ÷ 250 × 100 = 20%.
2. A bag costs 800. The seller adds 25% mark-up and then gives 10% discount. Find the selling price and profit %.
MP = 800 × 1.25 = 1000. SP = 1000 × 0.9 = 900. Profit = 100. Profit % = 100 ÷ 800 × 100 = 12.5%.
3. 20 pens at 15 each are sold with 5% sales tax. Find the invoice total.
Price = 20 × 15 = 300. Tax = 300 × 5 ÷ 100 = 15. Total = 315.
4. Goods worth 5,000 are bought on 30 days credit. The seller gives 2% cash discount if paid within 10 days. How much does the buyer pay if he pays on day 8?
Discount = 5,000 × 2 ÷ 100 = 100. He pays 5,000 − 100 = 4,900.
5. A shirt is sold for 540 at a loss of 10%. Find its cost price.
SP = 90% of CP, so CP = 540 ÷ 0.9 = 600.
6. Find the simple interest on 12,000 at 10% a year for 6 months.
t = 0.5 year. I = 12,000 × 10 × 0.5 ÷ 100 = 600.
7. An item costs 400. The seller wants 20% profit after giving a 10% discount. What marked price should he write?
SP = 400 × 1.2 = 480. SP = 0.9 × MP, so MP = 480 ÷ 0.9 = 533.33 (about 533).
Common mistakes
- Finding profit % on the selling price. It is always on the cost price.
- Taking the discount on the cost price. Discount is cut from the marked price.
- Forgetting that tax is added on top of the price, so the buyer pays more than the tag.
- Using months in the interest formula. Change months to years first (6 months = 0.5 year).