Trade and Cash discounts

Trade discount

• a gross deduction from the gross invoice or catalog price
• given by one trader to another
• varies with the quantity and type of goods purchased and is deducted at the point of sale
• usually the rate is high
• not recorded in the books of accounts
• encourages customers to buy from a particular source

Cash discount

• an allowance from the net invoice price given to any customer who pays promptly
• deducted when the payment is made
• rate is usually lower than that of Trade discount
• encourages early payment of debts
• may increase the rate of stock turn
• helps reduce the trader’s bad debts
• saves clerical work due to early payment
• recorded in the books of accounts

To access more topics go to the Commerce Notes page.