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- May 14, 2021 at 7:47 am #620548
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
May 14, 2021 at 9:37 am #620566No, 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
.May 14, 2021 at 10:56 am #620571Ok, 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.
May 14, 2021 at 1:46 pm #620588They only get the discount if they pay within the month 🙂
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