Trade discount in BRANCH ACCOUNTS

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teja sree (Querist)
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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

CA Amrita Chattopadhyay

CA Amrita Chattopadhyay (Expert)
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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

teja sree

teja sree (Querist)
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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

teja sree

teja sree (Querist)
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26 August 2016 sry can you help in passing entry in both the situations thanks in advance

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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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**:

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### 📘 **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.

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## ✅ **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.*

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### 🔹 **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.

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### 💡 **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.

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### ✅ 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** |

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