Definition of Business Discount
1. Business discounts are a discount on the list price or catalog price. 2. The purpose of granting a discount is to encourage buyers to buy in bulk.
3. The more goods you buy, the higher your discounted rates are. This will reduce the cost per unit of goods purchased and increase the profit margin of the business.
4. Business discounts are only shown in Journals. Trading discounts are never reflected in the ledger.
|Purpose of giving
|Encourage buyers to buy in bulk
|Encourage buyers to pay
|Rules of giving
|The more items purchased, the higher discount rate.
|Only given if debts paid on targeted period of time
|Recorded into Journal only
(a) Cash book > Ledger
(b) Individual Account:
i. Debtors Account (Discount given)
ii. Creditors Account (Discount received)
|When purchases made. (Business discount showed in invoice)
|When payment made. (Cash discount deduct from nett price in invoice when debts paid in targeted period.)