Trade discount

What is a trade discount?

Definition

Trade discount is a rebate or allowance from the listed price granted by the seller to the buyer at the time of selling goods.

Or

Trade Discounts are those discounts offered to a certain class of buyers.

Treatment of trade discount

It is a discount which is given on the listed price and no entry is made for this type of discount. Journal entry is made after deducting the amount of trade discount from the listed price of goods purchased or sold.

Example

If a book has a listed price of $350 and it is sold by the bookseller for $325. Then he has given a trade discount of $25.

Trade discount is usually granted in the following circumstances:

  1. When goods are sold to a fellow trader.
  2. When the buyer is an old customer.
  3. When sales are made in bulk.
  4. As a custom of trade.

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