I n t e r a c t I v e t e X t foundations in Accountancy/ acca financial accounting (ffa/FA) bpp learning Media is an acca approved Content Provider

Trade discounts received are deducted from the cost of purchases. Cash/settlement discounts received 

are included as 'other income' of the period. Trade discounts allowed are deducted from the gross sales 

price, and the net amount is then invoiced to the customer.   

If a customer is expected to take up a cash/settlement discount allowed, the discount is deducted from 

the invoiced amount when recording the revenue for the sale. If the customer subsequently does not take 

up the discount, the discount is then recorded as revenue. 

If the customer is not expected to take up the discount, the full invoiced amount is recognised as revenue 

when recording the sale. If the customer subsequently does take up the discount, revenue is then 

reduced by the discount.  

In this section, sales tax has been ignored as the interaction of discounts and sales tax will not be tested 

in your exam. 

2.2.1 Trade discounts 

A trade discount is a reduction in the amount of money demanded from a customer. 

(a) 

If a trade discount is received by a business for goods purchased from a supplier, the amount of 

money demanded from the business by the supplier will be net of discount (ie it will be the 

normal sales value less the discount). 

(b) 

Similarly, if a trade discount is given by a business for goods sold to a customer, the amount of 

money demanded by the business will be after deduction of the discount. 

Trade discounts should therefore be accounted for as follows. 

(a)