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What is the difference between Trade discount and Cash discount?

 Discount: It is a reduction amount offered to customers on goods sold to them. For example: 1 pencil set (contain 10 pencils) list price is Rs. 50. Seller offered 1% discount on it. So, the customer purchase the pencil set on Rs. 45.

There are two types of discount:

  • Trade discount
  • Cash discount

Trade discount: This type of discount is offered by whole seller to customer on list price of goods. When a customer purchase goods on bulk then whole seller give discount on those goods.  It is given to increase sale. The payment made in trade discount is in cash or credit. It is offered to customers by seller at the time of purchase.

Cash discount: This type of discount is offered by seller to customer for payment in particular time. It is only offered to get payment from customers. It is given by seller to its customer to get quick payment. The payment made in cash discount is in cash form only. It is offered to customers by seller at the time of payment.

Let’s find out the main difference between trade discount and cash discount:

Point of differences

Trade discount

Cash discount

What is the meaning of trade discount and cash discount?

It is a type of discount which is applied on products at the time of sale.

It is a type of discount which is applied on products at the time of payment made by buyer..

Where cash discount and trade discount is recorded in books of accounts?

It is not recorded in book of accounts. The price of product is recorded in book of accounts after deducting the trade discount.

It is recorded in book of accounts. It is recorded in profit and loss account as expense.

On which value trade discount and cash discount is calculated?

It is calculated on list price of products. List price is a price on which product is listed or manufacturer decided to be sold.

 It is calculated on price of a product available after deducting trade discount from list price.

Why trade discount and cash discount is given to buyer?

A trade discount is given to buyer to increase the sale.

A Cash discount is given to buyer to get quick payment.

What is the rate of cash discount and trade discount?

The rate of trade discount is depending on quantity of product purchased.

The rate of cash discount is not fixed.

What is the form of trade discount and cash discount?

It is in the form of cash or credit. It means buyer pays cash or credit to buy a product.

It is in the form of cash only. It means buyer pays cash to buy a product.

When trade discount and cash discount is given to buyer?

It is given at the time of purchase.

It is given at the time of payment made by buyer.

Example of trade discount and cash discount

Mr. P purchases 50 pencil set at Rs. 2400 but the list price of 1pencil set is Rs.50

Mr. P purchases 50 pencil set at 1% cash discount. He pays Rs.2376 on the price of Rs.2400.

 


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