Distinguish between trade discount and cash discount.

Basis of Difference

Trade Discount

Cash Discount

Meaning

It is allowed when goods are purchase or sold.

It is allowed at the time of payment.

Recording in books

It is recorded in invoice/bill butnot in the books.

It is recorded in the discount column of the Cash Book’s debit side, if allowed, and credit side, if received.

Purpose

It is allowed to increase sale.

It is allowed for earlier payment.

Deduction

It is deducted from the price-list of the goods.

It is not deducted from the price-list of the goods.