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