Question

Distinguish between cash discount and trade discount.

Answer 1

The differences between trade discount and cash discount are
$$\begin{array}{ccc}\text{Basis}& \text{Trade Discount}& \text{Cash Discount}\\ \text{Meaning}& \text{It is a reduction granted by a supplier}& \text{A reduction granted by a supplier in}\\ & \text{From the list price of goods or services}& \text{consideration of imediate payment}\\ & \text{on business considerations other than}& \text{or payment within a stipulated period.}\\ & \text{for prompt payment.}& \\ \text{Purpose}& \text{It is allowed to all the customers with}& \text{It is allowed with the purpose of}\\ & \text{an intention to increase sales}& \text{encouraging prompt payment.}\\ \text{Nature of transaction}& \text{It is allowed on both credit and cash}& \text{It is allowed only on cash transactions.}\\ & \text{transactions.}& \\ \text{Recording}& \text{It is not recorded in the books of}& \text{It is recorded in the books of}\\ & \text{Account}& \text{Account}\\ \text{Deduction from}& \text{It is deducted from the invoice.}& \text{It is not deducted from the amount}\\ & & \text{Payable}\\ \text{Time when allowed}& \text{It is allowed on purchase of goods.}& \text{It is allowed on immediate}\\ & & \text{Payment or payment within a specified}\\ & & \text{period}\end{array}$$