Cash Discount & Trade Discount

Cash Discount

Trade Discount

Is a reduction granted by supplier from the invoice price in consideration of immediate or prompt payment

Is a reduction granted by supplier from the list price of goods or services on business consideration re: buying in bulk for goods and longer period when in terms of services

As an incentive in credit management to encourage prompt payment

Allowed to promote the sales

Not shown in the supplier bill or invoice

Shown by way of deduction in the invoice itself

Cash discount account is opened in the ledger

Trade discount account is not opened in the ledger

Allowed on payment of money

Allowed on purchase of goods

It may vary with the time period within which payment is received

It may vary with the quantity of goods purchased or amount of purchases made