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

 

2

   Discounts 

Discounts can be defined as follows. 

  A trade discount is a reduction in the list price of goods, given by a wholesaler or manufacturer to a 

retailer. It is often given in return for bulk purchase orders. 

  A cash (or settlement) discount is a reduction in the amount payable in return for payment in cash, 

or within an agreed period. 

Before looking at control accounts for accounts receivable and payable, we need to consider the 

accounting treatment for discounts. 

2.1 Types of discount 

A discount is a reduction in the price of goods below the amount at which those goods would normally 

be sold to other customers. There are two types of discount. 

 

Trade discount 

 

Cash or settlement discount 

A 

trade discount 

is a reduction in the cost of goods owing to the nature of the trading transaction. It 

usually results from buying goods in bulk. 

 

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