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Unit-5 Journal

This unit explains the method of applying the rules of debit and credit to business transactions and how exactly the entries are made.

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Distinguish between trade discount and cash discount. .


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Learning Pundits Content Team

Written on Apr 17, 2019 6:06:20 PM

Key differences between trade discount and cash discount are:

  1. Trade discount is given on the catalogue price of the goods while the cash discount is given on the invoice price.
  2. Trade discount is granted with the aim of increasing the sales in bulk quantity, whereas Cash discount is granted to facilitate a quick payment.
  3. Trade discount is allowed to all customers while the Cash discount is allowed to those customers, who purchase goods in cash.
  4. In the case of Trade Discount, no entry is made in the books of accounts, while the proper entry is made in the books of accounts for the cash discount.
  5. A trade discount is shown as a deduction in the invoice. Conversely, a cash discount is not shown at all.
  6. The cash discount may differ with the time period, within which payment is made by the customer. On the contrary, trade discount may differ with the quantity of goods purchased and amount of purchases.
  7. Trade discount is allowed at the time of purchase while the cash discount is allowed at the time when the payment is made