Little stuck with percentages

If a business offers a discount of 10% on orders of £1000 paid within a week, what would the annual effect be on profit given no other information such as sales volume etc.

Comments

  • A-Vic
    A-Vic Registered Posts: 6,970
    The discount would be an expense to the business so it would be shown on the P&L as an expense and profits would be reduced as their bill would be reduced by £100
  • RichardK
    RichardK Registered Posts: 107 ? ? ?
    Hi,
    Discount allowed is considered an EXPENSE of a business. It is the COST of collecting payments more speedily from debtors.

    Discounts Allowed appears in the Expenses section of a P&L (which is below Gross Profit) and therfore do not affect GROSS PROFIT, instead it affects NET PROFIT.

    Sales-Cost of sales=Gross Profit

    Gross Profit-Expenses (including Discounts Allowed)= Net Profit

    In this case your NET PROFIT will be reduced by £100 (10% of £1000=£100)

    Be careful as you may think the discount affects the GROSS SALES figure. This is NOT the case.

    I hope this helps.
  • A-Vic
    A-Vic Registered Posts: 6,970
    RichardK wrote: »
    Hi,
    Discount allowed is considered an EXPENSE of a business. It is the COST of collecting payments more speedily from debtors.

    Discounts Allowed appear in the Expenses section of a P&L and therfore do not affect GROSS PROFIT, instead it affects Net Profit.

    In this case your Net Profit will be reduced by £100 (10% of £1000=£100)

    I hope this helps.

    Haha more detailed but beat ya to it richard ;)
  • RichardK
    RichardK Registered Posts: 107 ? ? ?
    A-Vic wrote: »
    Haha more detailed but beat ya to it richard ;)

    Hi,
    I'll leave you to answer in future. You are obviously much quicker than me. (LOL)
  • SandyHood
    SandyHood Registered, Moderator Posts: 2,034
    Miss Dazy wrote: »
    If a business offers a discount of 10% on orders of £1000 paid within a week, what would the annual effect be on profit given no other information such as sales volume etc.

    Miss Dazy
    Is this question in relation to your Unit 15 studies?
    1. Have you been asked for the value in money of offering this discount?
    2. Have you been asked for an Annual Percentage Rate (APR) of interest?
    3. Is this a different sort of question expecting a formulaic answer perhaps?

    Please would you add a little more detail?
    Sandy
    [email protected]
    www.sandyhood.com
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