How to Calculate a Trade Discount

Invoices will show the actual cost of the product net of any trade discount.

A trade discount is similar to a sales discount in that the purchaser can buy a product for less than the list price of the product. Companies usually give trade discounts to other companies that buy often or buy large amounts of products. Normally, a trade discount is presented as a percentage off of the list price. For example, a trade discount would be 10 percent off the list price.

Instructions

1. Determine the list price of the object. For example, Company A is selling widgets for $500,000.

2. Determine the trade discount percentage. For example, Company B wants to buy the $500,000 widgets and has always been a good customer to Company A so Company A offers a trade discount of 10 percent to Company B.

3. Multiply the price by the trade discount percentage to determine the amount of the trade discount. In our example, 10 percent of $500,000 equals a trade discount of $50,000.

4. Subtract the trade discount from the selling price to determine the selling price net any trade discounts. In our example, $500,000 minus $50,000 equals a net selling price of $450,000.

References

• Accounting Coach: Trade Discount Definition
• Principles of Accounting: Chapter 5