Here we detail about the difference between trade discount and cash discount.
1. Trade discount is an allowance or concession given by the supplier to the buyer on the invoice price.
2. Trade discount is not to be recorded in ledger accounts.
3. Trade discount is deducted from the invoice price.
4. The intention of allowing trade discount is to inspire or motivate the buyer to buy more items of the goods.
1. Cash discount is an allowance or concession given by the supplier to the buyer on the amount due from him.
2. Cash discount is recorded in the ledger in Discount Received A/c or Discount Allowed A/c.
3. Cash discount is deducted from the net amount due from him i.e., after deducting trade discount from the invoice price, cash discount is to be deducted.
4. The intention of allowing cash discount is to receive payments from the debtors early so that cash inflows of the business enterprise may be improved and chances of bad debts may be reduced.