TRADE DISCOUNT AND CASH DISCOUNT
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Types of cash discounts
-Discount allowed -Discount received
Why do business provide trade discount?
-To encourage bulk buying -To have loyal customers -To enable small businesses to survive
Discount allowed entries
Dr discount allowed Cr trade receivables
Discount received entries
Dr trade payable Cr discount received
Trade discount
It is a reduction on the list price of a product at the time of sale
Cash discount
It is an allowance on amount owed when a customer settles his balance within a specified time period
Are trade discounts recorded in books of account?
No
Why do business provide cash discounts?
To encourage prompt payment
