Answer Posted / manohar reddy patlolla
Trade discount is a discount that you receive from the
seller at the time of buying goods. (May be because of
buying higher quantity or due to your business relations
with the seller etc...) and the same is deducted or adjusted
in the invoice and you will be paying the net amount only.
Hence it does not go to your accounting books. You will be
Debiting Inventory and Crediting Accounts Payable for the
net amount of invoice you paid.
Whereas, Cash discount is a type of discount that is given
to the debtor (buyer) for making prompt payment.
For example, the Accounts Payable in your books shows a
credit balance of $1,000 that is due after one month. If you
make the payment before the due date, you may be granted a
special discount. Assume you got a discount of $ 100 for
making early payment. The entry will be as follows:
Debit : Accounts Payable $ 1,000
Credit : Bank Account $ 900
Credit : Discount Received $100
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