Question

What do you understand by trade discount and cash discount?

Answer 1

(i) Trade discount: The discount which is usually on the list price to increase the sales of the business is referred to as trade discount. This discount is offered to all the customers, as per the practice of the trade. It is not shown in the books of account and sale is recorded at net amount. i.e. sale less trade discount.
(ii) Cash Discount: The discount which is allowed by the supplier for immediate payment or payment before its due date is known as the cash discount. Cash discount is usually allowed as a percentage of the amount received. Cash discount is shown in the books of accounts.