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To find out if the settlement discount is feasible or not, we calculate average receivables before discount, which is (avg days/total days in year) * credit sales.
Then we calculate average receivables after discount, which will be (revised days/total days in year) * credit sales availing discount.
Then we do finance cost calculation etc.
To calculate average receivables after discount, do we need to deduct discount given or not?To calculate average receivables after the discount, we do not deduct the discount given.
The formula to calculate average receivables after the discount is (revised days/total days in a year) * credit sales.
The discount given is not subtracted from the credit sales when calculating the average receivables after the discount.
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