Math help from the Learning Centre

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)