Difference between Cash Discount and Trade Discount

Difference between Cash Discount and Trade Discount

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.

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