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Trade Discounts

A wholesaler sells to different kinds of customers who usually are the following:

  • Regular retailers who buy a lot of goods
  • Regular retailers who buy a few items each time
  • Customers who are not retailers


The retailers sell to their goods to the general public. They want discounts from the wholesaler so that their businesses can be profitable. The wholesaler wants to maintain their customers and attract more customers, so he sells to the retailers who buy a lot of goods with a big reduction in prices, to the retailers who buy only a few items with a smaller reduction in prices and to the others with no price reduction. The reduction in price is called a trade discount.


An example:

A wholesaler sells cases of wine, each unit of which contains twelve bottles at $600 per unit. A Winebar who regularly buys a lot is given 25 per cent trade discounts, B Winecellar is given 20 per cent, and C Wineglass gets no trade discount. The price paid by each of the customers is as follow:




A Winebar


B Winecellar

C Wineglass



$


$

$
Basic price


600


600

600
Less: Trade discount

(25%)
150

(20%)
120

-









Price charged to customer


450


480

600










No entry for trade discount is made in the double entry accounts or in the sales journal. The amounts recorded should be the net price - that is after deducting the trade discounts from the original price.

Sales Journal
Date

Invoice No.
Folio
Amount




$

A Winebar
1007
SL 13
450

B Winecellar
1008
SL 26
480

C Wineglass
1009

600


Sales Ledger

A Winebar Account

Date
Debtors
Folio
Amount

Date
Debtors
Folio
Amount



$




$

Sales
SJ 39
450






B Winecellar Account

Date
Debtors
Folio
Amount

Date
Debtors
Folio
Amount



$




$

Sales
SJ 52
480






Last Updated (Friday, 29 October 2010 16:35)