Trade Discount |
Cash Discount |
|
Meaning |
A discount on list price mostly offered to wholesale customers who purchase goods in bulk |
An early payment discount offered on billed/invoice price |
Purpose |
To encourage bulk purchases |
To encourage prompt/early payments |
Offered on |
The list price of goods sold |
The invoice price of goods sold |
Offered by |
Producers/manufacturers and whole sellers who wish to sell in large or bulk quantities to boost their profit |
Any seller who wishes to convert his/her accounts receivables into cash quickly or before the due date |
Received by |
Mostly resellers who are in a position to make purchases in large quantities |
Any buyer who is in a position to make an early payment |
When |
Available at the time of purchase or sale |
Available at the time of payment or collection of cash |
Accounting |
Not recorded in formal books of accounts |
Recorded in formal accounting records by both seller and buyer |
Dependent on |
Depends on quantity purchased |
Depends on how early cash is paid for goods bought |
Amount |
Percentage of discount offered is usually higher than cash discount (normally between 5 to 20 percent) |
Percentage of discount offered is usually lower than trade discount (normally between 1 to 2 percent) |
Reference: https://www.termscompared.com/trade-discount-vs-cash-discount/
The net price (N) is the price of the product after the discount is removed from the list price. It is a dollar amount representing what price remains after you have applied the discount.
The list price (L) is the normal or regular dollar price of the product before any discounts.
The discount rate (d) represents the percentage of the list price that is deducted.
D is the amount of discount.
