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

Quote:

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Originally Posted by angelamcc2007

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

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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!!

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

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!! )

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!!

You're welcome