Difference between cash discount and trade discount
Trade discount differs from cash discount in the following respects.
Trade Discount
- Parties: It is a reduction granted by a manufacturer/supplier.
- Purpose: To help the retailer to earn some profit.
- Time when allowed: It is allowed on the purchase of goods.
- Variation: It is usually given at the same rate which is applicable to all customers and will vary with the quantity purchased.
- Disclosure: It is shown by way of deduction in the invoice itself.
- Ledger Account: A separate Account is not opened in the Ledger.
Cash Discount
- Parties: It is a reduction granted by a whole seller (creditor) to the buyer (debtor).
- Purpose: To encourage prompt payment within a stipulated period.
- Time when allowed: It is allowed when payment is made within the specified period.
- Variation: It varies from customer to customer depending on the time and period of payment.
- Disclosure: It is not shown in the invoice.
- Ledger Account: A separate Account is opened in the Ledger for discount received and discount allowed.
