Saturday, 23 January 2021

CH 17 - TRADE DISCOUNT AND CASH DISCOUNT

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(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.