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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 / kasi reddy
Trade Discount is the deduction granted by supplier towards
business consideration to increase the sales with bulk
qualtity of goods/services. Trade discount will never be
recorded in books of accounts, since it is given on invoice
copy. Trade discount is given to promote the sales.
The Cash Discount is the reduction granted by supplier for
encourage the prompt or Immediate payment.
The details are as follows.....
Total sales = 100000
Trade discount = 5% on 100000 = 100000*5/100 = 5000
The actual sales = 100000-5000 = 95000.
Cash Discount is 5% on 95000 = 95000*5/100 = 4750.
Now the entry for cash discount is: -
Purchases a/c DR 95000,
To Discount received a/c 4750,
To Cash/Bank a/c 90250.
(Being cash Discount received from purchaser)
| Is This Answer Correct ? | 23 Yes | 4 No |
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