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Chapter 7
2.2 Accounting for discounts
Trade discounts
The trade discount should be deducted from the quoted price and is NOT accounted
for in the accounting records of either the seller or the purchaser i.e. only the net
(discounted) amount will be recorded.
Therefore, trade discounts have no impact on the amount of sales tax that will be
payable or recoverable by an entity.
Example 1
On 1 January, AB bought goods for resale on credit from XY, with a list price
of $250, subject to trade discount of 20 per cent.
Required:
What was the amount of the trade discount and what are the accounting
entries required by AB to record this purchase of goods?
Example 1: Solution
The trade discount was $50 (20% × $250), and therefore the net amount
payable is $200.
The accounting entries required by AB to record this purchase are as
follows:
Debit
Credit
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