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Q. Jasmine buys goods from Reshma on 60-day credit limit terms. Alternatively, a 10% cash discount is available on any payment received within 10 days.
During February the following transaction took place:
Feb 2 Jasmine buys $800 of goods
Feb 11 Jasmine pays Reshma a cheque of $360What is the balance of Jasmine’s account in Reshma’s receivable ledger at 28 February?
A) $400
B) $485
C) $360
D) $440Answer is D
because its paid by cheque and not by cash so no discount will be applied .
Hope t helpedA cash discount is given for prompt payment. It is nothing to do with cash/cheque.
The payment on 11/2 of $360 will be after the 10% discount has been given, so is settling an original debt of 360/0.9 = $400. Therefore the amount owing hasbeen reduced by $400: $360 paid and 400 x 10% = 40 discount, ie ‘let off’, for prompt payment.
The amount outstanding is therefore $800 – $400 = $400.
Answer: C
Soln:
The total purchases $800 minus discount of 10% minus cheque amount $360 equal $360.
The payment was within the 10 days limit which enable Jasmine to gain discount of $80 for paying on the 9 day of the discount days, i.e Feb 2-11.Note: Cash payment does not refer to using cash to make payment only. It is the idea of paying for goods and services at the point of transaction.
Cash discount is not always given for prompt payment and can be given any time within the credit limit. e.g 5% cash discount for payment made within 15 days of purchase.
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