Accounting treatment of trade discount and cash discount
This query is : Resolved
25 January 2025
what will be the accounting treatment of Trade discount and cash discount for
Discount Given
Discount Received
whether discount given should be part of other expenses
discount received should be part of indirect income.
please reply
Discount Given
Discount Received
whether discount given should be part of other expenses
discount received should be part of indirect income.
please reply
12 August 2025
1. Trade Discount
Definition: A reduction in the list price given by the seller to the buyer, usually based on quantity or agreement.
Accounting Treatment:
Not recorded separately in the books.
The invoice amount is recorded net of trade discount.
Example:
List price = ₹10,000
Trade discount = 10% = ₹1,000
You record sales or purchase = ₹9,000 only.
2. Cash Discount
Definition: A discount allowed or received for prompt payment.
Accounting Treatment:
Recorded separately in the books as an expense or income.
Discount Given:
Treated as an expense or reduction from sales revenue (sometimes shown as "Discount Allowed").
Debited to Discount Allowed account (Expense side).
Discount Received:
Treated as other income or reduction in purchase cost (sometimes shown as "Discount Received").
Credited to Discount Received account (Income side).
Summary Table:
Discount Type Discount Given (By you) Discount Received (By you)
Trade Discount Not recorded separately; sales recorded net of discount Not recorded separately; purchases recorded net of discount
Cash Discount Recorded as expense (Discount Allowed) Recorded as income (Discount Received)
Example entries for Cash Discount:
Discount Given:
When customer pays early and gets discount:
Dr. Discount Allowed A/c (Expense)
Cr. Customer / Bank A/c
Discount Received:
When you pay early and get discount:
Dr. Supplier / Bank A/c
Cr. Discount Received A/c (Income)
Important:
Trade discount reduces the value of sale/purchase directly and is not shown separately in the accounts.
Cash discount is accounted for separately.
Definition: A reduction in the list price given by the seller to the buyer, usually based on quantity or agreement.
Accounting Treatment:
Not recorded separately in the books.
The invoice amount is recorded net of trade discount.
Example:
List price = ₹10,000
Trade discount = 10% = ₹1,000
You record sales or purchase = ₹9,000 only.
2. Cash Discount
Definition: A discount allowed or received for prompt payment.
Accounting Treatment:
Recorded separately in the books as an expense or income.
Discount Given:
Treated as an expense or reduction from sales revenue (sometimes shown as "Discount Allowed").
Debited to Discount Allowed account (Expense side).
Discount Received:
Treated as other income or reduction in purchase cost (sometimes shown as "Discount Received").
Credited to Discount Received account (Income side).
Summary Table:
Discount Type Discount Given (By you) Discount Received (By you)
Trade Discount Not recorded separately; sales recorded net of discount Not recorded separately; purchases recorded net of discount
Cash Discount Recorded as expense (Discount Allowed) Recorded as income (Discount Received)
Example entries for Cash Discount:
Discount Given:
When customer pays early and gets discount:
Dr. Discount Allowed A/c (Expense)
Cr. Customer / Bank A/c
Discount Received:
When you pay early and get discount:
Dr. Supplier / Bank A/c
Cr. Discount Received A/c (Income)
Important:
Trade discount reduces the value of sale/purchase directly and is not shown separately in the accounts.
Cash discount is accounted for separately.
You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now
Click here to login now
Similar Resolved Queries
Unanswered Queries
- ITR 3 VALIDATION
- EPF withdrawal before 5 years and Disclosure in ITR-2
- Brokage income from sale and purchase of property
- Clarification on ITR 3: Is Sl. No. 64 required for 44ADA income?
- Investment guidance for NRI
- Applicability of stamp duty on Advance Bank Guarantee and Performance Bank Guarantee in Maharashtra?
- Clarification on temporary surplus parking by co-operative banks in mutual funds
- I T RETURN FILE-FY 2024-25
- Journal entry closing books of accounts of Individual and HUF
- Rule 54(1A) of C
- Transfer of partnership interest in LLP
- Accounting entry for instalment payments and gst obigations
- Purchase of Time Deposit in AIS
- "Please ensure that the Total of the Deductions u/s 54F match the same in Table D in Sch CG"
- Composition Dealer GST Annual Return Filing process
- Stamp Duty & Registration Fees on Sale Deed
- GST on Restaurant service
- Revision under Section 264 in The Income Tax Act, 1961
- TDS under section 195.
- Filing GST Returns after death of proprietor
Trending Online Classes
-
Input Tax Credit, GST refunds and Recovery of refunds- Roadblocks and way outs
CA Nipun Arora03 September 2025 -
GST LIVE Certification Course - 43rd Weekdays Batch(With Govt Certificate)
Industry Expert15 September 2025
CAclubindia
