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The books of prime entry, discounts and sales tax

Discounts

2.1 Types of discount

A discount is a reduction in the amount paid for goods and services. Discounts may
be received from suppliers (a form of income) or allowed to customers (an expense
incurred). There are two types of discount you need to be aware of, trade discounts
and cash discounts.

 Trade discounts – Trade discounts are offered by an entity to its customers in
an attempt to encourage customers to increase the volume of sales made. For
example if you were to buy over 1000 items the supplier may drop the unit price
of those items by 5%.

 Cash discounts – This type of discount encourages credit customers to pay for
items quicker than they have previously agreed. For example you may have
agreed with a supplier that you will pay for goods one month after their delivery
date but then the supplier offers an early settlement discount of 5%, if you pay
the amount due within 10 days.

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