Trade Discount and Cash Discount
1. Trade Discount:- Trade discount means a discount which is given by the seller during the selling of goods. This type of discount generally gets fixed before entering into an agreement with the parties. Trade discount is deducting from the list price of the goods. It means we are deducting discounts from the invoice value. Moreover, We do not record trade discounts on our accounts. Although, we also can categorize trade discounts as quantity discounts.
2. Cash Discount:- Cash Discount is a type of discount which is allowed in case of making payment by the buyer within the time limit allowed to them. In the case of Cash discount, both parties (seller and buyer) are benefitted because seller will get working capital and on the other side buyer will get material at a discounted price.
Journal Entry of Cash Discount
Journal entry for discount allowed
Date | Particular | Ledger folio | Amount(In Rs.) |
01/04/2020 | Shilong cafe A/c | Dr. | 100000 |
To Sales | Cr. | 100000 | |
(Being sales recorded of tables amounting to Rs.100000) | |||
Journal entry regarding discount allowed |
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10/04/2020 | Cash A/c | Dr. | 95000 |
Discount Allowed A/c | Dr. | 5000 | |
To Shilong cafe A/c | Cr. | 100000 | |
(Being cash received withing 10 days therefore discount allowed of 10%) |