Difference between Cash Discount and Trade Discount - QS Study
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Difference between cash discount and trade discount

Trade discount differs from cash discount in the following respects.

Trade Discount

  • Parties: It is a reduction granted by a manufacturer/supplier.
  • Purpose: To help the retailer to earn some profit.
  • Time when allowed: It is allowed on the purchase of goods.
  • Variation: It is usually given at the same rate which is applicable to all customers and will vary with the quantity purchased.
  • Disclosure: It is shown by way of deduction in the invoice itself.
  • Ledger Account: A separate Account is not opened in the Ledger.

 

Cash Discount

  • Parties: It is a reduction granted by a whole seller (creditor) to the buyer (debtor).
  • Purpose: To encourage prompt payment within a stipulated period.
  • Time when allowed: It is allowed when payment is made within the specified period.
  • Variation: It varies from customer to customer depending on the time and period of payment.
  • Disclosure: It is not shown in the invoice.
  • Ledger Account: A separate Account is opened in the Ledger for discount received and discount allowed.