Distinguish between Trade Discount and Cash Discount, and illustrate both with a worked example: Sold goods to Mohan, listed at ₹50,000, allowing trade discount of 10%. He was further allowed cash discount of 2% for payment within 7 days, and paid within that period.

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| Basis | Trade Discount | Cash Discount | |---|---|---| | When allowed | At the time of sale/purchase, on the list price | At the time of payment, for prompt settlement | | Purpose | Encourages bulk buying / rewards a class of buyer | Encourages quick payment | | Recorded in the Journal? | Never shown separately — deducted before recording | Always shown separately (Discount Allowed/Received A/c) | | Depends on | Quantity/value of goods | Period within which payment is made | **Working.** Trade discount = 50,000 × 10% = ₹5,000. Net sale value = 50,000 − 5,000 = ₹45,000 — this is the figure recorded as Sales. *Entry at the time of sale (on credit):* | Date | Particulars | L.F. | Debit (₹) | Credit (₹) | |---|---|---:|---:|---:| | — | Mohan's A/c...............Dr.
To Sales A/c
(Being goods sold to Mohan, list price 50,000 less 10% trade discount) | | 45,000 | 45,000 | Cash discount = 2% of the NET amount owed (45,000) = ₹900. Cash actually received = 45,000 − 900 = ₹44,100. *Entry at the time of receipt (within the discount period):* | Date | Particulars | L.F. | Debit (₹) | Credit (₹) | …

Q.Distinguish between Trade Discount and Cash Discount, and illustrate both with a worked example: Sold goods to Mohan, listed at ₹50,000, allowing trade discount of 10%. He was further allowed cash discount of 2% for payment within 7 days, and paid within that period.

Concept understanding — GST, Trade Discount and Cash Discount in Journal Entries

Basis	Trade Discount	Cash Discount
When allowed	At the time of sale/purchase, on the list price	At the time of payment, for prompt settlement
Purpose	Encourages bulk buying / rewards a class of buyer	Encourages quick payment
Recorded in the Journal?	Never shown separately — deducted before recording	Always shown separately (Discount Allowed/Received A/c)
Depends on	Quantity/value of goods	Period within which payment is made

Q.Distinguish between Trade Discount and Cash Discount, and illustrate both with a worked example: Sold goods to Mohan, listed at ₹50,000, allowing trade discount of 10%. He was further allowed cash discount of 2% for payment within 7 days, and paid within that period.

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