Trade discount is given by the wholesaler to retailer on printed price for encouraging bulk purchase of an item and to earn profit by selling the goods at printed price. This discount has no accounting treatment.
The main advantages of trade discount are:
- There cannot be any argument between the buyer and the seller in regard to the price of the product.
- No special journal entry is required to record trade discount.
- Different prices are charged to different types of customers.
- It is an easy method of making changes in prices without reprinting the price list and changing the printed price mentioned in the article.