Distinguish between Trade Discount and Cash Discount, and state how each is treated in the books of account.

Illustrations · Q6

Q. Distinguish between Trade Discount and Cash Discount, and state how each is treated in the books of account.

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Basis	Trade Discount	Cash Discount
When allowed	At the time of purchase/sale itself, on the invoice	At the time of payment/receipt, for settling promptly
Purpose	Encourage bulk buying / trade-class pricing	Encourage quick settlement of the amount due
Recorded in books?	Never — deducted before the transaction even reaches the Purchases/Sales Book	Yes — through the Cash Book's discount column, posted to Discount Allowed A/c (Dr, an expense) or Discount Received A/c (Cr, a gain)
Depends on	Nothing beyond the transaction itself	Whether, and how promptly, the debtor/business actually pays
Appears in Trial Balance?	No — it never entered the books	Yes — as Discount Allowed (Dr) and Discount Received (Cr)

Q.Distinguish between Trade Discount and Cash Discount, and state how each is treated in the books of account.