Difference Between Cash and Trade Discount

A discount can be defined as reduction from the cost price of good which one has to pay. Discount can be both trade as well as cash and here are some of the differences between the two –

1. Cash discount is a decrease granted by supplier from the invoice price of the good in consideration of immediate or timely payment while trade discount is allowed by the seller of the goods to the buyer of good when he buys from him in bulk quantities. It is given at the catalog price of good and not at the invoice price of good.

2. Cash discount is allowed while a buyer is giving payment of money while trade discount can be allowed only on purchase of goods.

3. For cash discount there is entry in the books of account and hence a ledger is opened for cash account while for trade discount there is not entry in the books of account and hence there is no ledger for it.

4. A cash discount is given in order to encourage the buyer to pay at the earliest while the purpose of giving trade discount is to increase the sales and not early payment.

It may also happen that a buyer may get both trade as well as cash discount, in that case cash discount is calculated on the amount which is arrived at by deducting trade discount out of the total amount of sale.