Question

Which of the following is correct about trade discount?

• A. It is synonymous with discount?
• B. It is shown by way of deduction in invoice itself
• C. It is calculated on account paid or received
• D. It is allowed to engage the prompt payment

Answer 1

Answer: (B)

It is shown by way of deduction in invoice itself

A trade discount is the amount by which a manufacturer reduce the retail price of a product when it sells to a reseller, rather than to the end customer. the reseller than charges the full retail price to its customers in order to earn a profit on the difference between the amount by which the manufacturer sold the product to it and the price at which it then sells the product to the final customer. The reseller does not necessarily resell at the suggested retail price; selling at a discount is a common practice. If the reseller wishes to gain market share or clear out excess inventory. Trade discount is issued by deduction in the first price. From accounting point of view no entries are made. It is shown by way of deduction in invoice itself.