Little stuck with percentages
Miss Dazy
Registered Posts: 34 Regular contributor ⭐
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.
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Comments
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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 £1000
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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.0 -
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 richard0 -
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?- Have you been asked for the value in money of offering this discount?
- Have you been asked for an Annual Percentage Rate (APR) of interest?
- Is this a different sort of question expecting a formulaic answer perhaps?
Please would you add a little more detail?Sandy
sandy@sandyhood.com
www.sandyhood.com0
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