Distinction between cash discount and trade discount :
Trade discount differs from cash discount in the following respects.
S.No |
Basis of Distinction |
Trade Discount |
Cash Discount |
1. |
Parties | It is a reduction granted by a manufacturer/ supplier | It is a reduction granted by a whole-saler (creditor) to the buyer (debtor). |
2. |
Purpose | To help the retailer to earn some profit. | To encourage prompt payment within a stipulated period. |
3. |
Time when allowed | It is allowed on the purchase of goods. | It is allowed when payment is made within the specified period. |
4. |
Variation | It is usually given at the same rate which is applicable to all customers and will vary with the quantity purchased. | It varies from customer to customer depending on the time and period of payment. |
5. |
Disclosure | It is shown by way of deduction in the
invoice itself. |
It is not shown in the invoice. |
6. |
Ledger Account | A separate Account is not opened in the Ledger. | A separate Account is opened in the Ledger for discount received and discount allowed. |