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Trade vs Cash Discount Explained

Trade discount refers to a reduction in list price given by a supplier to customers who purchase goods in bulk quantities. In contrast, a cash discount is given by a supplier to incentivize customers to make early cash payments by offering a discount if payment is made within a stipulated time period. Trade discount is implicitly included in the transaction price before billing, while cash discount is an additional deduction calculated on the printed invoice. Both discounts aim to retain and attract bulk-buying customers, but trade discount focuses on purchase volume while cash discount focuses on timely payments.

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539 views2 pages

Trade vs Cash Discount Explained

Trade discount refers to a reduction in list price given by a supplier to customers who purchase goods in bulk quantities. In contrast, a cash discount is given by a supplier to incentivize customers to make early cash payments by offering a discount if payment is made within a stipulated time period. Trade discount is implicitly included in the transaction price before billing, while cash discount is an additional deduction calculated on the printed invoice. Both discounts aim to retain and attract bulk-buying customers, but trade discount focuses on purchase volume while cash discount focuses on timely payments.

Uploaded by

Mauilyn Ibay
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Diferrence between trade discount and cash

discount
-trade discount refers to the reduction in list price known as a discount, allowed by a supplier to the consumer while
selling the product in bulk quantities to the concerned consumer. In contrast, a cash discount is a discount given by the
supplier on its cash payments to recover the cash debts on time as it motivates the buyer to pay cash early as they are
given a discount if they pay within the stipulated time.

 Trade discount is provided by the seller at the time of purchase to attract customers and increase sales. More
importantly, the sellers are interested in those customers who are interested in buying bulk quantities. Since it is
offered at the time of purchase, it is often implicitly part of the prices of the products and is included in the
transaction before the billing statement is printed.
 Cash discount, on the other hand, is offered at the time when the seller offers payments and is calculated as an
additional deduction on the printed invoice. It is offered subject to certain conditions, incentivizing the buyer to make
a large part of the payment upfront and pay the remaining installments as soon as possible.

Basis of Comparison Trade Discount Cash Discount

This discount is given by the seller to the buyer


It is given by the seller to the buyer when
when he is making a purchase transaction. Thus,
Source he is buying goods as per the discount
it is not known beforehand but decided more on
policy.
an ad-hoc basis.

It is more like a way to retain business by


It is more like a negotiation tactic that
incentivizing the buyer to buy products in
Aim incentivizes the buyer to make upfront
large quantities and become a repeat
payments.
customer.

Given by the seller as a reduction in the Given by seller over and above the billed price to
Significance  market price of the product; make immediate payments;

Trade discount is executed when a buyer A cash discount is executed when the buyer
Timing  is initiating a buy order. initiates payment.

Trade discount is not recorded as the


amount payable is calculated after
Accounting  deducting the discount from the invoice
Recorded at the debit side on the cash book
itself.

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