Trade discount in BRANCH ACCOUNTS
This query is : Resolved
25 August 2016
Good afternoon sir/mam,
I request you to explain me the accounting treatment of trade discount of branch in stock & debtors method.
Thanking you in advance
26 August 2016
If the branch accounts are prepared individually, the trade discount are needed to be taken into consideration. However, if the same is merged with head office and the discount is given by Head office, the effect of discount need not be shown
26 August 2016
Thank you,
In case of dependent branches the do we need to take it in branch stock account as trade discount or we need to directly to branch adjustment acc
Which is correct entry:
1.Trade discount a/c dr
to branch stock a/c (or)Branch adjustment a/c
2.Branch adjustment a/c dr
to trade discount
26 August 2016
sry can you help in passing entry in both the situations
thanks in advance
02 August 2025
In **Branch Accounts under the Stock and Debtors Method**, the **treatment of trade discount** depends on **how the invoice price is set** and **whether the trade discount is already adjusted in that invoice price**. Let’s break it down step-by-step for **dependent branches**:
---
### 📘 **Understanding the Background:**
* Under the **Stock and Debtors method**, goods are sent by the Head Office to the Branch at **invoice price** (which usually includes a markup).
* If the **trade discount** is given to customers by the **branch**, and it **affects the invoice price**, it must be adjusted properly in branch accounts.
---
## ✅ **Accounting Treatment of Trade Discount in Dependent Branch (Invoice Price Basis)**
### 🔹 **Case 1: Trade Discount Given to Customers by Branch (Not included in Invoice Price)**
If the trade discount is allowed to customers but not adjusted in the invoice price:
#### 🔁 **Correct entry:**
```
Branch Adjustment A/c Dr
To Trade Discount A/c
```
> 🔍 *This reduces the load from Branch Adjustment Account, which ultimately reconciles profit/loss due to markup and adjustments.*
---
### 🔹 **Case 2: Trade Discount Already Adjusted in Invoice Price**
Then **no separate entry** is required for trade discount. It is already taken care of in the invoice pricing, and all accounts (Branch Stock A/c, Branch Adjustment A/c) are based on that price.
---
### 💡 **Important Clarification:**
* **You should not use "Trade Discount A/c Dr to Branch Stock A/c"** — this is incorrect under this method.
* Always route adjustments through **Branch Adjustment Account**, which is used to reconcile **invoice price and cost price**, **returns**, **shortages**, **allowances**, etc.
---
### ✅ Final Answer:
| Situation | Journal Entry |
| --------------------------------------- | ------------------------------------------------------- |
| Trade discount not in invoice price | `Branch Adjustment A/c Dr` `To Trade Discount A/c` |
| Trade discount already in invoice price | **No separate entry needed** |
Let me know if you'd like to see this with an example!
---
### 📘 **Understanding the Background:**
* Under the **Stock and Debtors method**, goods are sent by the Head Office to the Branch at **invoice price** (which usually includes a markup).
* If the **trade discount** is given to customers by the **branch**, and it **affects the invoice price**, it must be adjusted properly in branch accounts.
---
## ✅ **Accounting Treatment of Trade Discount in Dependent Branch (Invoice Price Basis)**
### 🔹 **Case 1: Trade Discount Given to Customers by Branch (Not included in Invoice Price)**
If the trade discount is allowed to customers but not adjusted in the invoice price:
#### 🔁 **Correct entry:**
```
Branch Adjustment A/c Dr
To Trade Discount A/c
```
> 🔍 *This reduces the load from Branch Adjustment Account, which ultimately reconciles profit/loss due to markup and adjustments.*
---
### 🔹 **Case 2: Trade Discount Already Adjusted in Invoice Price**
Then **no separate entry** is required for trade discount. It is already taken care of in the invoice pricing, and all accounts (Branch Stock A/c, Branch Adjustment A/c) are based on that price.
---
### 💡 **Important Clarification:**
* **You should not use "Trade Discount A/c Dr to Branch Stock A/c"** — this is incorrect under this method.
* Always route adjustments through **Branch Adjustment Account**, which is used to reconcile **invoice price and cost price**, **returns**, **shortages**, **allowances**, etc.
---
### ✅ Final Answer:
| Situation | Journal Entry |
| --------------------------------------- | ------------------------------------------------------- |
| Trade discount not in invoice price | `Branch Adjustment A/c Dr` `To Trade Discount A/c` |
| Trade discount already in invoice price | **No separate entry needed** |
Let me know if you'd like to see this with an example!
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