What is a trade discount and how is it treated in the day books?

Intermediate

Answer

A trade discount is a reduction in the list price given to certain customers (e.g., for bulk or trade status). It is deducted before the invoice is raised, so only the net-of-trade-discount amount is recorded in the day book—no separate entry is made for the trade discount itself. It differs from a cash (settlement) discount.

List price 1,000, trade discount 10% = 100
  Invoice/day book records net 900 (+VAT on 900).
No ledger entry for the 100 trade discount.

Real-world example A wholesaler bills a retailer at list price less a 10% trade discount, and only the reduced amount enters the sales day book.

Common follow-ups: Is trade discount recorded separately? | How does it differ from a settlement discount?

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