Trade Discounts 

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Normally, businesses have List Prices to refer to for, well, product prices. These product prices are what would be normally tagged for products when sold to day-to-day customers. On the other hand, businesses can offer specially marked-down prices to special customers, that is, they lower the prices of their products. 

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These decreases in prices can be expressed in percentages or straightforward peso amounts and are called Trade Discounts. 

 

Example 1: 

Goods with a list price of P100.00 per unit are offered to Special Customer A for only P90.00 apiece. 

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Example 2: 

Goods with a list price of P100.00 per unit are offered to Special Customer A with a trade discount of 10. (This"10" is 10%. The Trade Discount is P100.00 x 10% = P10.00 apiece. Therefore the new offer price is P100.00 - P10.00 = P90.00 apiece.)

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Example 3: 

The business offered Special Customer B 10 units of Apollo EyePhone with a list price of P50,000.00 each for a trade discount of 8. If customer Special Customer B accepts, how much will be the total amount of sales made to him?

List Price = P50,000.00;

Trade discount = 8%;

P50,000.00 x 8% = P4,000.00.

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New offer price = P50,000.00 - P4,000.00 = P46,000.00.

Alternatively and mathematically, you can arrive at the same answer by: P50,000.00 x 92% = P46,000.00. 

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If Customer B eventually purchases these 10 products as offered, the entry of the seller will be: 

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Cash -- P460,000.00

     Sales -- P460,000.00

 

(Invoice price = P46,000.00 x 10 units

Invoice price = P460,000.00 )

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Observe that the Trade discount of P40,000.00 does not appear in the journal entries - neither in the seller's books nor in the buyer's books. TRADE DISCOUNT IS NOT RECORDED.

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Example 4: 

The business offered Special Customer B 10 units of Apollo EyePhone with a list price of P50,000.00 each for a trade discount of 8 and 10. If customer Special Customer B accepts, how much will be the total amount of sales made to him?

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List Price = P50,000.00;

1st Part Trade Discount = P50,000 x 8% = 4,000.00.

1st Part Offer Price = P50,000.00 - 4,000.00 = P46,000.00. 

 

2nd Part Trade Discounts = P46,000.00 x 10% = 4,600.00.

2nd Part Offer Price = P46,000.00 - 4,600.00 = P41,400.00. 

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The final offer price is P41,400.00. 

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If the buyer contracts/ agrees with P41,400.00, the seller's journal entry will be:

Cash -- P41,400.00

     Sales -- P41,400.00