Trade discount is a rebate or allowance from the listed price granted by the seller to the buyer at the time of selling goods. Or Trade Discounts are those discounts offered to a certain class of buyers. It is a discount which is given on the listed price and no entry is made for this type of discount. Journal entry is made after deducting the amount of trade discount from the listed price of goods purchased or sold. If a book has a listed price of $350 and it is sold by the bookseller for $325. Then he has given a trade discount of $25. Trade discount is usually granted in the following circumstances:What Is a Trade Discount?
Definition
Treatment of Trade Discount
Example
Trade Discount FAQs
A trade discount is an incentive given by a seller to a buyer for purchasing goods in large quantities or at regular intervals. It is generally expressed as a percentage of the wholesale price and can help buyers save money on their purchases.
A trade discount is negotiated between the buyer and seller, with the amount of the discount being based on the quantity of goods purchased. Generally, larger purchases are rewarded with higher discounts. The exact rate and terms of a trade discount can vary from one agreement to another.
Although both trade and bulk discounts are incentives given to buyers for purchasing in large quantities, they do have some differences. A trade discount is negotiated between buyer and seller, while a bulk discount is generally offered by the seller to any customer who purchases large enough quantities. Additionally, the terms of a bulk discount are generally the same for all customers, while trade discounts can vary from agreement to agreement.
Trade discounts may be offered by sellers located in any country, however they are more commonly associated with business-to-business transactions and thus may be more widely available to companies in the United States, Canada and Europe.
As with any agreement between buyer and seller, it is important to read over all terms of a trade discount carefully before signing. Additionally, buyers should be aware that larger discounts may require larger minimum purchase amounts, which could leave buyers with excess inventory that they cannot resell. It is therefore important to consider the pros and cons of entering into a trade discount agreement before doing so.
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.
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