Account 4 Marks Question

Difference Among Trade Discount and Cash Discount:

No.	Basis	Trade Discount	Cash Discount
1.	Nature	It is allowed on sale or purchase of certain quantity.	It is allowed on payment being made on or before a certain date.
2.	Nature of Transaction	It is allowed on both cash and credit sales or purchase.	It is allowed only on payment.
3.	Recording	Trade discount is not recorded separately in the books of account.	Cash discount is recorded separately in the books of account.
4.	Deduction from Invoice	The amount of the trade discount is deducted from the invoice.	It is not deducted from the invoice.

Cash discount is calculated after deducting trade discount from the invoice price. In other words, cash discount is calculated always on net amount. Discount received or discount allowed is related to payment and thus, they are recorded in the books of account along with the entry recorded for payment and receipt of amount, in cash or by cheque. The accounting entries for cash discount are passed as follows:

1. When Cash Discount is received:

2. When Cash Discount is allowed:

S.No.	Based on Traditional Classification of Account			S.No.	Based on Modern Classification of Accounts
	Type of Account	Debit	Credit		Types of Accounts	Debit	Credit
1.	Personal A/c	The Receiver	The Giver	1.	Asset A/c	Increase	Decrease
2.	Real A/c	What comes in	What goes out	2.	Liabilities A/c	Decrease	Increase
3.	Nominal A/c	All Expenses and Losses	All Income and Gains	3.	Capital A/c	Decrease	Increase
				4.	Revenue A/c	Decrease	Increase
				5.	Expense A/c	Increase	Decrease