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Question

Distinguish between cash discount and trade discount.
 


Solution

The differences between trade discount and cash discount are
         Basis            Trade Discount              Cash DiscountMeaningIt is a reduction granted by a supplierA reduction granted by a supplier inFrom the list price of goods or services consideration of imediate paymenton business considerations other thanor payment within a stipulated period.for prompt payment.PurposeIt is allowed to all the customers withIt is allowed with the purpose ofan intention to increase salesencouraging prompt payment.Nature of transactionIt is allowed on both credit and cashIt is allowed only on cash transactions.transactions.RecordingIt is not recorded in the books ofIt is recorded in the books ofAccountAccountDeduction fromIt is deducted from the invoice.It is not deducted from the amountPayableTime when allowedIt is allowed on purchase of goods.It is allowed on immediatePayment or payment within a specifiedperiod

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