Question

purchase discounts are the same as trade discounts. true or false?

Answer 1

False, purchase discounts are not the same as trade discounts.

A purchase discount is generally applied when goods are purchased by a buyer on credit and to fasten the receipt of payment purchase discount is given. This type of discounts are recorded in books of accounts.

A trade discount given by the seller to the buyer at the time of purchase of goods. It is given as a deduction in the list price or retail price of the quantity sold. This is usually allowed by the sellers to attract more customers and receive the order in bulk i.e. to increase the number of sales.

The sale and purchase will be recorded at the amount after the trade discount is subtracted. As this discount is deducted before any exchange takes place, it does not form part of the accounting transaction and is not entered into the accounting records of the business.