Trade Discount in Purchase Book or Purchase Journal
A discount granted by a seller of goods or services on the retail price is called a trade discount. It is provided as a business consideration such as trade practices, large quantity orders, etc. Trade discount in the purchase book is shown in a separate row as a reduction and thus arriving at a final net amount to be recorded.
Trade discount is not shown in a ledger account, the net amount thus calculated after deducting trade discount from the cost of goods purchased is posted to the debit side of the purchase account in the ledger.
Cost of Goods Purchased – Trade Discount = Net Amount to Record
Example Showing Trade Discount in Purchase Book
Prepare the purchase book of Unreal Pvt Ltd. from the following details.
Jan 7 – Purchased 10 Keyboards from ABC Co. for 300 each (for resale, invoice # 60)
Less: Trade discount @ 10%
Purchase Journal for Unreal Pvt Ltd.
Short Quiz for Self-Evaluation