Distinguish Between Trade and Cash Discount - Difference

1. Meaning ↓

Trade Discount is a discount allowed by the seller to the buyer in case of bulk purchases made by him.

Cash Discount is a reduction in the net amount payable by the buyer when prompt payment is made by the buyer.

2. When Allowed?

Trade discount is usually allowed when bulk purchases are made.

Cash discount is usually allowed if payment in cash is made promptly i.e. within a short period of time.

3. Purpose or Objective ↓

Trade discount's object is to attract bigger orders by giving incentive to the buyer to buy more.

Cash discount's purpose is to encourage the buyer to make prompt payment.

4. How Calculated?

Trade discount is calculated as a percentage of the catalogue price.

Cash discount is calculated as a percentage of net amount payable by the buyer.

5. Variation in Rate ↓

Trade discount rate varies according to the type and quantity of goods purchased.

Cash discount varies according to the period of payment.

6. Entry in the Books of Accounts ↓

Trade discount does not appear in the books of accounts.

Cash discount is recorded in the books of accounts.