Difference between Trade Discount and Cash Discount

Difference between Trade Discount and
Cash Discount
Trade Discount Cash Discount
1 Calculated at a fixed rate on list price and deducted from the list Calculated at a fixed rate on
price selling price and deducted from
the selling price.
2 Helps in increasing the sale of goods. Motivates the buyer to make
prompt payment
3 Trade discount account is not prepared Cash discount account is
prepared. It is debited in the
books of seller and credited in
the books of buyer
4 Eg:-sold goods of list price Rs1000 at 20% trade discount to Raj Eg:-Raj makes payment two
days later. Allowed him cash
Journal Entry in the books of Seller will be discount@10%.

Dr Cr Journal Entry in the books of
Raj Dr 800 Seller will be
To Sales A/c 800 Dr Cr
Cash A/c Dr 720
Cash Discount A/c Dr 80
To Raj 800