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Greetings sir,
Example 4
If in the first month, the calculation is carried out after a settlement discount of 2%, why wouldn’t the next month’s calculation be carried out on the same 98% of the credit sales? Lets take month 1 for instance. It has been updated from 72,000 credit sales to (x.98=) $70,560 and then 40% of this cash is received. So why when calculating for month 2, the settlement amount gets reversed, and we multiply 60% directly by 100% of the original credit sales figure of $72,000 ? Didn’t the settlement discount reduce the customer balance permanently for future calculations?
Thankyou
No, you are misreading the question.
If the sales are 80,000, then customers for 8,000 pay in cash, which leaves 72,000 on credit.
Of the 72,000 on credit, customers owing 40% (28,800) pay in the month of sale and customers owing 60% (43,200) pay one month later.
Those customer paying in the month of sale will pay net of a discount of 2% and so the cash received from them will be 98% x 28,800 = 28,224
.Ok, so the discount is on the 40%, and I thought it was on the whole of the credit sales, after which 40% would be deducted, leading to the contention that 60% should follow the same rule as well.
Thankyou very much for the clarification.
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