7.3 FC Average­Daily­Balance Method.notebook
October 22, 2014
7.3 Finance Charge: Average­Daily­Balance Method
Determining the Charge When New Purchases Are Included Most companies granting credit compute the finance charge using the average­daily­balance method ­ new purchases included. New purchases included means that the company adds any new purchase to the balance at the end of each day. In other words, the daily balance equals the previous day's balance plus new purchases minus the payments and credits. Credit card companies also charge a late fee if they do not receive payment by the due date. The first step in calculating the average daily balance­new purchases included is to determine the balance for each day in the billing period and then use the following formula to find the average daily balance for the billing period. Sum of Daily Balances
Average Daily Balance =
Number of Days
The next step is to calculate the finance charge and the new balance. Use these formulas:
Finance Charge = Average Daily Balance X Periodic Rate
New Balance = Unpaid Balance + Finance Charge + New Purchases
What's the difference in finance charge and a late fee?
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7.3 FC Average­Daily­Balance Method.notebook
October 22, 2014
Ex. 1) Sierra Warren has a charge account with a company that computes the finance charge using the average daily balance­new purchases included. She checks to be sure that the average daily balance is correct. Part of her statement is shown (p. 292 in textbook): Verify that her average daily balance is correct.
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7.3 FC Average­Daily­Balance Method.notebook
October 22, 2014
Ex. 2: A) Find the average daily balance including new purchases.
Billing Cycle: 9/9­10/8
Previous Balance: $500
Account
9/16 $100 Purchase
Activity: 9/22 $150 Payment
B) Find the finance charge if the periodic rate is 2.75%.
C) Find the new balance.
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7.3 FC Average­Daily­Balance Method.notebook
October 22, 2014
Ex. 3) Vana Dodd's credit card finance charge is based on the average­daily­balance method­
new purchases included. Her monthly periodic rate is 2.3%, and her finance charge for the past billing cycle is $29.00. Find her average daily balance.
Ex. 4) Seth Dixon has a credit card with monthly periodic rate of 1.95%. The finance charge is computed using the average­daily­balance method­new purchases included. If his credit card statement shows a finance charge of $32.76 for the last billing cycle, find his average daily balance. Assignment
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7.3 FC Average­Daily­Balance Method.notebook
October 22, 2014
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