Question

Trade discount is usually given:

• A. To encourage early payment
• B. To encourage bulk purchases
• C. To penalize late payment
• D. To reduce expenses

Answer 1

Answer:

B. To encourage bulk purchases

DISCOUNT

• Discount is a rebate or deduction allowed either on the selling price of a product/services or on the amount due.

• Discount may be trade discount or cash discount

Trade Discount

• When goods are purchased in bulk quantities, the seller may give certain concession on the listed price to the buyer. This concession is called trade discount.

• Trade discount encourages the customers to buy more.

• Trade discount recorded in the books of account as it is deducted in the invoice (bill) itself.

• Example :

• Purchased goods wort Rs 50,000 from Rajan at a trade discount of 10%. Here value of purchase is recorded as Rs. 45,000 (50000-5000). Therefore trade discount Rs.5000 never recorded in the books of account.