Distinguish between Cash Discount and Trade Discount.

**Or**

Redraft the following Trial Balance:

A Book-keeper extracted the following Trial Balance as on 31st December, 2019.

| Particulars | Dr. (Rs.) | Cr. (Rs.) |
|---|---|---|
| Capital A/c | 4,00,000 | |
| Plant & Machi

Question

Distinguish between Cash Discount and Trade Discount.

**Or**

Redraft the following Trial Balance:

A Book-keeper extracted the following Trial Balance as on 31st December, 2019.

| Particulars | Dr. (Rs.) | Cr. (Rs.) |
|---|---|---|
| Capital A/c | 4,00,000 |  |
| Plant & Machinery A/c | 2,00,000 |  |
| Debtors A/c |  | 3,50,000 |
| Creditors A/c |  | 2,00,000 |
| Opening Stock A/c | 2,50,000 |  |
| Salaries A/c |  | 2,50,000 |
| Sales A/c |  | 10,00,000 |
| Cost of Goods Sold | 7,50,000 |  |
| Closing Stock | 2,00,000 |  |
| **Total** | **18,00,000** | **18,00,000** |

Accepted Answer

>

> [!TLDR]
> Trade discount is given on the list price to promote bulk sales and is not recorded in the books; cash discount is given to encourage quick payment and is recorded.
>
> **Distinction between Cash Discount and Trade Discount:**
>
> | Basis | Trade Discount | Cash Discount |
> |---|---|---|
> | Meaning | Reduction allowed on the list/catalogue price | Reduction allowed on the amount due |
> | Purpose | To encourage bulk/large purchases | To encourage prompt/early payment |
> | When allowed | At the time of sale or purchase | At the time of receipt or payment |
> | Recording | Not recorded in the books (only the net amount is entered) | Recorded in the books of account |
> | Shown in | Deducted on the invoice itself | Entered in the Cash Book / Journal |
>
> **Or — Redraft the Trial Balance (as on 31st December, 2019):** the book-keeper had placed several items on the wrong side. Capital is a liability (credit), Debtors is an asset (debit) and Salaries is an expense (debit); and since Cost of Goods Sold is given, the Closing Stock is shown on the credit side (adjusted-purchases method) so that the balance agrees.
>
> | Particulars | Dr. (Rs.) | Cr. (Rs.) |
> |---|---|---|
> | Plant & Machinery A/c | 2,00,000 | |
> | Debtors A/c | 3,50,000 | | …

Particulars	Debit (₹)	Credit (₹)
Buyer's A/c Dr.	90,000
To Sales A/c		90,000
(Being goods sold at 10% trade discount)

Particulars	Debit (₹)	Credit (₹)
Cash A/c Dr.	88,200
Discount Allowed A/c Dr.	1,800
To Buyer's A/c		90,000

Concept understanding — Trade Discount vs Cash Discount

Trade Discount vs Cash Discount — A First Look

What Each One Means

Why This Distinction Matters

Accounting Treatment — Step by Step

Trade Discount

Cash Discount

Cash Discount

Particulars	Dr. (Rs.)	Cr. (Rs.)
Capital A/c	4,00,000
Plant & Machinery A/c	2,00,000
Debtors A/c		3,50,000
Creditors A/c		2,00,000
Opening Stock A/c	2,50,000
Salaries A/c		2,50,000
Sales A/c		10,00,000
Cost of Goods Sold	7,50,000
Closing Stock	2,00,000
Total	18,00,000	18,00,000

Basis	Trade Discount	Cash Discount
Meaning	Reduction allowed on the list/catalogue price	Reduction allowed on the amount due
Purpose	To encourage bulk/large purchases	To encourage prompt/early payment
When allowed	At the time of sale or purchase	At the time of receipt or payment
Recording	Not recorded in the books (only the net amount is entered)	Recorded in the books of account
Shown in	Deducted on the invoice itself	Entered in the Cash Book / Journal

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