Example Trade Discount Journal entry on purchases

Example Trade Discount Journal entry on purchases

Trade discount is offered at the time of purchases and amount of bill is reduced by the trade discount. Trade discount is not accounted for in books of account and purchases are recorded at net amount. The trade discount must not be confused with early payment discount  that is accounted for in books of account.

Example of Trade Discount

1. Smart & Jan Co made a purchases for 1,000 $ on Cash from Muneeb & Co. and received a Trade discount @ 5%.

Solution

The amount will be recorded at net amount i.e. 1000 ( 1000 –  50) . The amount of $ is calculated 5% of 1000 i.e. 50.

Date	Particulars	Dr	Cr
11 Nov ,2014	Purchases a/c	950
11 Nov ,2014	Cash a/c		950