LESSON THREE FINANCE CHARGE AVERAGE DAILYBALANCE METHOD Average DailyBalance Method Computing the finance charge on a credit account based on the average balance at the end of each day of the billing period ID: 801785
Download The PPT/PDF document "CHAPTER SEVEN CHARGE ACCOUNTS & CRED..." is the property of its rightful owner. Permission is granted to download and print the materials on this web site for personal, non-commercial use only, and to display it on your personal computer provided you do not modify the materials and that you retain all copyright notices contained in the materials. By downloading content from our website, you accept the terms of this agreement.
Slide1
CHAPTER SEVENCHARGE ACCOUNTS & CREDIT CARDS
LESSON THREE
FINANCE CHARGE: AVERAGE DAILY-BALANCE METHOD
Slide2Average Daily-Balance Method: Computing the finance charge on a credit account based on the average balance at the end of each day of the billing period.
Average Daily Balance x Periodic Rate = Finance Charge
Unpaid Balance + Finance Charge + New Purchases = New Balance
Slide3Example 1: Sierra Warren has a charge account with a company that computes the finance charge using the average daily balance- new purchases included. She checks to be sure the average daily balance is correct. See below for part of her statement.
Step 1: Find the sum of the daily balances.
$1,132,20 + $151.65 + $1,364.85 + $81.65 + $898.15 = $3,628.50Step 2: Find the average daily balance.Sierra’s average daily balance is $117.05
Slide4PAGE 292COMPLETE #1-7
Slide5Example 2: Sierra Warren checks the finance charge and the new balance. The finance charge is computed at 2% of the
avereage
daily balance. What is her new balance?Step 1: Find the finance chargeAverage Daily Balance x Periodic Rate = Finance Charge$117.05 x 0.02 = $2.34Step 2: Find the unpaid balancePrevious Balance – (Payments + Credits) = Unpaid Balance$125.80 – $70.00 = $55.80Step 3: Find the new purchasesNew purchases totaled $25.85Step 4: Find the new balanceUnpaid Balance + Finance Charge + New Purchases = New Balance$55.80 + $2.34 + $25.85 = $83.99
Slide6PAGE 293COMPLETE #8-10
Slide7Example 3: Vana Dodd’s credit card finance charge is based on the average-daily-balance method--new purchases included. Her monthly periodic rate is 2.3%, and her finance charge for the past billing cycle was $29.00. Find her average daily balance.
Let A =
Vana’s average daily balanceAverage Daily Balance x Periodic Rate = Finance ChargeA x 0.023 = $29.00A = $1,260.87
Slide8PAGE 293-294COMPLETE #11-19