Question

Explain trade discounts. what is a trade discount, why do companies offer trade discounts and why are trede discounts not recorded in the accounts?

Answer 1

Trade discount is reduction of cost of goods or services provided. Normally trade discount given on retail prices. It helps small businesses. Purchase price is arrived after deducting trade discount and deducted before the exchange of goods take place. So trade discount not come under accounting transaction if practically speaking. That's why the trade discount is reduced from purchase price and purchase transactions recorded after reducing trade discounts from purchases.