Page 70 - F3 -FA Integrated Workbook STUDENT 2018-19

Chapter 5

Discounts

2.1 Types of discount

A discount is a reduction in the amount paid for goods and services. There are two
types of discount you need to be aware of, trade discount and settlement (cash)
discount.

 Trade discount – Trade discounts are offered by a seller to the customer in an
attempt to increase the volume of sales made.

For example, if a customer purchased more than 1,000 units, the seller may
reduce the price per unit by, say, 5%.

 Settlement (cash) discount – This type of discount encourages credit
customers to pay amounts outstanding earlier than they have previously
agreed.

For example, a seller may have agreed with a customer that they can pay for goods
thirty days following delivery date, but the seller may also offer the customer an early
settlement discount of, say, 5%, if they make payment within seven days of delivery
date..

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