Cash Discounts?

System · October 2005

Can someone help me please. I missed my first lesson at college, which was about cash discounts. The tutor gave me notes which are absolutly useless!!!! Basically i was given home work to work out the total invoice value when a cash discount is given. e.g. you buy 10 items @ Ã‚Â£10 each, with a 10% discount. Now common sense tells me to take the 10% from the total goods, work out the vat then add the two together. which would give me a total of Ã‚Â£105.75 However, ive been told different. You work out the vat on the discounted goods but when you cometo the total you add the original total (with out the discount) to the vat worked out on the discounted items so the correct total would be Ã‚Â£115.75. Please can some one tell me why this is im sooooooo confusssssseeeedddd surely you would add the discounted total to the vat?????? Cheers Te

System · October 2005

Cash Discounts?

read it slowly and follow the steps , u will surely get it. if there is only trade discount 10 * 10 = 100 reduce 10% TD = 10 you get 90 calculate vat 17.5% (std rate) on 90 = 15.75 add 90 +15.75 this will be the invoice total. 105.75 if there is TD and Cash Discount same calculation for trade discount 100 - 10 = 90 then reduce the cash discount say 2 % i.e. calculate 98% of 90 ( 100- 2 % is 98 % so you would basicaly try to get the amount after reducing 2% cash discount) = 88.2 now calculate 17.5% ont his reduced amount of 88.2 which is = 15.43 (vat should always be rounded down) now here the hitch. u should add the amount of VAT 15.43 to 90 (goods total ) and not 88.2 so your invoice total should be 90 + 15.43 = 105.43 i hope i have not confused you. but i am sure if you work it out slowly u shuld understand it . i f not let me know i shall explain it again in a better format

System · October 2005

Cash Discounts?

sorry, forgot to mention that 115.75 cannot be the correct total there is ought to be a mistake , they might have tried to say 105.75. must be a typo, so dont get confused and simply ask ur tutor to explain it to u

System · October 2005

Cash Discounts?

Cheers, but i am still confused?? What if its is only a Cash discount? I understand trade discount, which is how i worked out the answers to the cash discount question but apparantly theyre wrong and you only add the discounted vat to the total before the discount. I checked on osbourne website on those tests they do on there and theyve done exactly the same added the (vat worked out from the discounted price to the total goods before the discount) God im so confussed. Think i might have to speak to the tutor.

System · October 2005

Cash Discounts?

There are basically two ways of doing discount on an invoice. If you are giving bulk or trade discounts you know just how much discount there'll be, so you just take the discount off and calculate VAT on the discounted total as you'd expect, When you give a settlement/cash discount, the problem is you don't know what the discount will be as it depends on the customer. Potentially, you would have to reculculate your VAT and sales figures when the customer pays the invoice. To save you from this, the taxman allows you to calculate the VAT as if the discount has already been taken. So the VAT calculation stays the same whether or not the customer takes the discount. The calculations would be: Trade/Bulk discount Goods 100 Trade Discount @10% 10 Subotal 90 VAT@17.5% 15.75 Total 105.75 Cash/Settlement discount Goods 100 VAT* 15.75 Total 115.75 *Cash discount @10% Subtotal 90 VAT 15.75 If there's trade and cash discount, take the trade discount off then work out the VAT for the cash discount on that figure Hope that helps. Chris

System · October 2005

Cash Discounts?

This is the way my home study taught me: Cost of goods(10x10) = 100 Trade discount(100x10%) = 10.00 Total cost of goods(100-10) = 90.00 Cash discount(say 2% for payment in 7 days, taken or not) 90.00 x 2% = 1.80 90.00 - 1.80 = 88.20 Vat ( 88.20 x 17.5/100) = 15.43 90.00 + 15.43 = 105.43 It all rides down to whether you have a cash discount or just a trade discount when calculating your VAT. Hopefully I haven't confused you more

System · October 2005

Cash Discounts?

Hi, I don't know why the cash discount is worked out the way it is......it just is, makes no sense to me either but I have checked double checked and triple checked and what you have been told is correct, so like me forget about logic and just do it......!

Cash Discounts?

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