## Trade Discounts vs Cash Discounts
### Trade Discount
- A reduction given at the time of sale (e.g., 'buy 10, get 10% off')
- Always deducted from revenue — revenue is recognised at net price
- Trade discount is not recorded separately in the books
### Cash Discount
- A reduction offered for early payment (e.g., '2% discount if paid within 10 days')
- Revenue is recognised at the gross amount (full invoice value)
- Cash discount is recorded as a separate expense when availed
| Feature | Trade Discount | Cash Discount |
|---|---|---|
| When given | At time of sale | On early payment |
| Revenue impact | Deducted from revenue | No reduction in revenue |
| Accounting entry | Net price as revenue | Gross as revenue; discount = expense |
### Journal Entries:
Trade Discount (₹15,000 price, ₹5,000 discount):
```
Debtors A/c Dr. 10,000
To Sales Revenue 10,000 ← Net of discount
```
Cash Discount (₹10,000 invoice, 5% = ₹500 cash discount):
```
At sale:
Debtors A/c Dr. 10,000
To Sales Revenue 10,000 ← Gross amount
At payment:
Bank A/c Dr. 9,500
Cash Disc A/c Dr. 500
To Debtors A/c 10,000
```