Difference between Cash discount And Trade discount
Goal of each and every company in the market is to gain profit within a stipulated amount of time. In order to ensure the amount of profit, it is necessary to increase product sales. Diverse ranges of techniques are utilized for profit. Discounts, advertisements and new products are launched to obtain more shares in the market in an effective manner. Discounts are used as one of the most effective strategies for optimum amount of profit. However, there are few kinds of discounts available in the market. By looking at the cash discounts Vs trade discounts, it is possible to decide about a perfect strategy regarding discounts.
Meaning: If the discount is given on the list price then it is recognized as trade discount. It is generally offered by seller.
On the other hand when the discounts are given through the invoices with any service or products then it is called cash discount.
Purpose: Bulk sales are ensured with the trade discount. Whereas, prompt payment is secured with the cash discount.
Book entry: Trade discount is not enlisted in the book. However, cash discounts are included within the book.
When it is given: Trade discount is given during purchase of a material. Cash discount is offered during purchase.
What is Trade Discount?
Seller offers discount to the buyers when the product is purchased from the market. Deduction is done according to the list price on the numbers of products that have been sold in the market. It can be considered as a ploy to attract more number of customers from the market. Quantity of the sales can be enhanced certainly in the market. Record of this account cannot be retained in the books. It can be noticed with the both sellers and buyers.
What is Cash Discount?
During payment of purchased goods, discount is given to the customer. It is quite natural to observe a reduction in invoice prices upon the commodity on the occasion. Prompt payment is ensured by the seller in the process. Credit risk is eliminated to some extent in the process also. However, record of this discount is generally kept within the book.
Cash Discount Vs Trade Discount
- On the basis of catalogue price, trade discount is presented to the customer. In case of cash discount, invoice price takes the central role.
- Purpose of offering trade discount is to guarantee sale in higher quantity. However, cash discounts allow quick payment
- Customers are eligible to get trade discount. On the other, cash discounts are given to those customers who have been purchasing goods with the cash.
- Trade discount does not get a place in the account book. In case of cash discount, proper entry is made within the account book.
By using above tools, sales revenue of a company can be enhanced. Customer often bargains with the seller in order to secure discount on the products. If discounts are offered to the customers’ naturally then trust can be gained. In addition, customers can be sustained for longer. It is certainly an excellent way to create a brand name for the company.