what is the difference between cash discount and trade
discount.
what is the journal entry for purchase of 100000 giving
(a) 5% trade discount
(b) 5% cash discount.
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Answer Posted / vijay rathi
Reasons for not Recording Trade Discount is:
Since it is given at time of sales to induce bulk purchases, therefore it is regarded as reduction in Selling Price. Thus for purchaser total cost of goods becomes = Actual Price - Trade Discount
Journal Entry
Purchase A/c....Dr 9500
To Sundry Debtor/cash/bank A/c. 9500
On Other hand, Cash discount is given to prompt purchaser for early payment for goods which he has already purchased. Now since the creditors are alredy on books of Purchaser with total Value, therefore any discount received while payment to them is gain for them:
Journal Entry
Creditors A/c Dr 10000
To Cash Discount 500
To Cash/Bank 9500
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