Glossary
Trade discount
A reduction off the list price given to certain customers, deducted before the invoice total.
What it means
A reduction in the list price of goods, given for reasons such as bulk buying or trade status; not recorded separately in the ledger.
Example
A list price of RM1,000 with 10% trade discount is invoiced at RM900.
Why it matters
Only the net figure (after trade discount) is recorded. Trade discount never appears in the accounts.
In practice
A trade discount never appears in the ledger. It is worked out and taken off the list price before the invoice total is written, so the books record only the net figure.
Suppose a wholesaler lists goods at RM800 and allows a regular retailer 25 per cent off. The seller records sales of RM600 and the buyer records purchases of RM600. The RM200 reduction is not entered, and no discount account is opened for it. The calculation may be shown on the invoice, but it stops there.
Students often confuse it with cash discount. The difference is timing and purpose. A trade discount rewards the type of customer, often a fellow trader buying in bulk, and is settled before the invoice exists. A cash discount rewards prompt payment. It is recorded later, when the money changes hands, in the discounts allowed or received account.
If you keep posting trade discount into the ledger, one of our teachers can check your invoices with you and show what to record. Book a trial class.
Related terms
Syllabus reference: Cambridge 0452 and 0985, syllabus for 2027 to 2029, sub-topic 2.3 Books of prime entry (page 12).
Definitions here are general accounting explanations for study. For your board's exact wording, see its official syllabus via Sources.
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