Difference between Trade Discount and Cash Discount

What is the difference between the Trade Discount and Cash Discount?

The nature of the trade discount and the nature of the cash discount are different, so there is a difference between the two. Below are the differences between the trade discount and cash discount:

  1. The seller gives the buyer some discount on the price list of the product sold. The amount of money that is given in this discount is called a trade discount. On the other hand, in order to recover the due amount of the goods sold as soon as possible, the seller gives a certain discount to the debtor, which is called a cash discount.
  2. Trade discounts arise during the purchase and sale of products. On the other hand, Cash discounts arise during the settlement of debts.
  3. The trade discounts are based on the list price or the total price of the product. On the other hand, Cash discounts are based on the net selling price of the goods or the amount due and payable.
  4. The buyer and seller do not keep a trade discount account in their book. On the other hand, both the buyer and seller keep a cash discount account in their book.
  5. The purpose of the trade discount is to help the retailer make a profit. On the other hand, the purpose of the cash discount is to get the money back from the debtor as soon as possible.
  6. The same trade discount is granted to all buyers. On the other hand, the discount rate varies from person to person depending on the time of payment.
  7. Big traders give trade discounts to relatively small traders. On the other hand, cash discounts between debtors and creditors are granted on the basis of the contract, the time of payment of the debts, and the fees.
  8. The trade discount does not change the financial position of the parties concerned. On the other hand, the cash discount changes the financial position of the parties concerned.
  9. Trade discounts are not included in the accounts of the debtors or creditors. On the other hand, cash discounts are included in both the debtor’s and the creditor’s books.
  10. Trade discount is granted only in the case of the sale of goods. On the other hand, cash discounts may be granted and accepted in the event of any debt settlement.
  11. The trade discount is used as a business sales policy. On the other hand, cash discounts are applied for the final settlement of the debt.
  12. Since the net price is determined by deducting the trade discount as provided for in the purchase agreement, there is no opportunity to accept or reject it. On the other hand, cash discounts may be accepted or rejected on the basis of the wishes of the debtor and the creditor.

In the light of the differences referred to above, it can be concluded that, although both the cash discount and the trade discount are granted by the seller to the purchaser and the creditor to the debtor, there is a large difference between them in terms of payment, discount basis and so on.

You may also read:

  1. What is Discount, Cash Discount, and Trade Discount?
  2. Why is Trade Discount not accounted for?
  3. Features of Cash Book.
  4. Short questions and answers-Cash Book.
  5. Concept of Contra Entry and Reverse Entry in Cash Book.

Leave a Comment