Question

What is the difference between Cash discount and trade discount. Indicate the accounts in which these discounts appear.      

Answer 1

Cash discount:

This is the payment-related discount offered by seller to buyer for encouraging quick payment. Basically, it happens in on-account selling where the buyer pays late; the seller offers such discount to that buyer for getting payment quickly.

Trade discount:

This is the discount offered by seller to buyer for encouraging bulk purchase. Therefore, it happens at the time of actual transaction of goods; the price thus settled after the trade discount would be the invoice price of goods that will be paid by the buyer after paying necessary cash discount.

Accounts:

Cash discount appears either in discount received or discount paid – in seller’s book it is discount paid and in buyer’s book it is discount received.

Trade discount doesn’t appear in any account, since it is settled before the actual transaction is made.