Q. Explain about trade discount?

A trade discount is a percentage deduction or else discount from the specified list price or catalogue price of merchandise. Companies utilize trade discounts to

- Decrease the cost of catalogue publication. A seller is able to use a catalogue for a longer time by printing list prices in the catalogue and giving separate discount sheets to salespersons whenever prices change.

- Allowance quantity discounts.

- authorize quotation of different prices to various customers such as retailers and wholesalers. The seller's invoice may demonstrate trade discounts. But sellers don't record trade discounts in their accounting records because the discounts are used only to calculate the gross selling price. Nor do trade discounts emerge on the books of the purchaser. To illustrate suppose an invoice contains the following data

The seller files a sale of USD 3360. The purchaser files a purchase of USD 3360. Therefore neither the seller nor the purchaser enters list prices and trade discounts on their books.