A business has a bank balance at the start of the month of £2,500. It then paid for materials invoiced at £1000 less trade discount of 20% and cash discount of 10%. A cheque was received froma debtor for £200 subject to cash discount of 5%

The bank balance at the end of the month is:

A£1970

B£1980

C£1990

D£2000

I am confused as to how to treat the cash discount of 10%. Do i add to the trade discount and create 30% =£700 to deduct from £1000 or deduct 20% first then 10% = £720

Many thanks

tam_83

Not too sure but i think each transacation has to be treated separately for the books sake..

2500.00

-1000
less 20% trade disc -833.33
less 10% Cash disc -757.57

total: 1742.43


plus 200.00

less 5 % bus disc: 190.47
Total all in all: 1932.9
But i defo could and probably am WRONG!!!

CaptainForest

Starting Cash 2,500

1,000 Less the 20% takes you down to 800. It being a trade discount, I think the cash discount would be on the 800 and not 1,000, but am not 100% sure. It if is on the 800, that is 80 off so that takes you down to 720

Summary:
Starting Cash 2,500
Less: 720

We received 200 from a client. Based on how it is worded, he took the 5% off and 200 was what you received.

Summary:
Starting Cash 2,500
Less: 720
Add: 200
Ending Balance: 1,980

tam_83

Don't know what the hell way my mind was working yesterday but it certainly was convoluted!!! (after looking at the answer i posted yesterday and am getting really confused!!!)

angelamcc2007

thanks so much to both of you. I had to submit this yesterday and i think i've got it wrong.How i calculated it in the end was

starting balance 2,500

1000 - 20% = 800

800-10% = 720

200 - 5% = 190

2500 - 720+190 = 1970

Probably wrong but there you go. I think the wording as you suggest of the cheque received means that the discount has already been deducted but i didn't catch that and i've already submitted. I'll let you know when i get results but MANY MANY THANKS!!!!!!!

CaptainForest

you're welcome