Question
What is Trade Discount? Give an example.
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Answer
Trade Discount Trade Discount is a discount allowed by the seller on purchase of goods in large quantity. It is normally allowed by the seller to the purchaser who further sells goods to the consumer. It is deducted in the invoice from sale price and is not recorded in the books of account. Sale is recorded at the net value, i.e., sale price less trade discount For example, Amit sells goods to Vikas of ₹ 10,000 allowing him trade discount of 20%. The invoice will be prepared for net amount ₹ 8,000, i.e., after trade discount. Amit will pass following Journal entry in his books of account:Images.
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