(34) Discount
It is an allowance given by the
seller of goods out of selling price/list price/catalogue price or a deduction
for making prompt payment.
Discount
is of two types:
(1) Trade Discount (T.D.)
(2) Cash Discount (C.D.)
Trade Discount:-
This Discount is allowed by
wholesaler or manufacturer to the retailer at a fixed percentage on the listed
price of goods. It is allowed when goods are purchased in bulk/ large quantity.
This discount is allowed both on credit as well as cash transactions. No separate
entry is passed for the Trade discount, as it is deducted from the cash memo or
invoice of the goods.
Cash Discount
This Discount is allowed to the
customer for making prompt/quick/early payment. In other words, Cash Discount
is allowed only if the customer makes the payment within a fixed period. Such
Discount motivates the customers to make the payment at the earliest. The entry
for Cash Discount is recorded a long with the entry for payment. Discount is
nominal account. It is debited when it is allowed to a customer and credited when
it is received.
Difference
Between Trade Discount and Cash Discount
|
Trade
Discount |
Cash
Discount |
|
This
Discount is allowed by wholesaler or manufacturer to the retailer at a fixed percentage
on the listed price of goods. |
This
Discount is allowed to the customer for making prompt/quick/early payment or within
a fixed period. |
|
It
is allowed when goods are purchased in a specified quantity. |
It
is allowed when payment is made on or before a specified date. |
|
It
is not recorded separately in the books of account. |
It
is recorded separately in the books of account. |
|
It
is deducted from the invoice |
It
is not deducted from the invoice. |
|
It
encourage to quantity. |
It
encourage quick payment. |
