Distinguish between trade discount and cash discount
Answers
TRADE DISCOUNT
Trade discount is defined as a discount allowed on the list price of the goods. It is given by producer to the wholesaler or by a wholesaler to the retailer for encouraging the retailer to purchase goods in large quantity. Trade discount is usually given to customers to retain the customers for a long term and the discount given is shown in the invoice and the trade discount given is not recorded in accounting records at all.
CASH DISCOUNT
Cash discount is defined as a reduction in price which is allowed by the seller to the buyer to encourage him to make payment in cash at the earliest possible. It is treated as a Nominal Account transaction. The cash discount given is recorded in the accounting books. The person who allows a discount, consider it as an expense and records it under debit section as ‘Discount allowed’. The person who received the discount, consider it as an income and records it under credit section as ‘Discount Received '.