What is the Difference Between Discount and Rebate?


Difference Between Discount and Rebate

Discount and rebate are commonly used terms in today’s dynamic markets, especially the e-commerce world. Rebated and discount are distinct forms of price-cuts which directly or indirectly promote the overall sales of a business. Both the terms may sound similar, however, there is a considerable difference between discount and rebate. applied.

Rebate – It is provided by a seller to the buyer for reasons such as; inferior quality of goods, inaccurate quantity, missing buyer-specific features in the final product, delayed supply, etc. Unlike, trade discount which is provided mainly for high quantity buying, a rebate is for reasons which help a supplier to provide healing touch in a situation that is unfavourable during the process of selling.

Example of Rebate – Goods worth 10,000 were sold by Unreal Corp. to ABC Corp. but some of the goods were of poor quality, therefore, after a mutual agreement Unreal Corp. allowed a rebate of 1,000 i.e. 10%.


Discount – It is granted by a seller to the buyer in two distinct forms; trade discount and cash discount. It may be allowed out of the selling price (also known as maximum retail price or catalogue price) or as a reduction from the net amount payable.

Trade Discount – It is provided to encourage large quantity buying and is mostly provided to resellers.

Cash Discount – it is provided to encourage early payment. This helps the seller to maintain cash flow and healthy working capital.

Example of Discount – Goods worth 10,000 were sold by Unreal Corp. to ABC Corp. @10% each. Cash discount allowed @5% if payment is made within 15 days. This means a trade discount of 10% and an additional 5% discount if the payment is made within 15 days of the sale.   

Main difference between discount and rebate for reasons each of them is offered

 

Table Format – Difference Between Discount and Rebate

 DiscountRebate
DefinitionDiscount is the reduction offered by a seller to the buyer from the purchase price of goods or services.Rebate is refund or return of currency value that a seller of goods provides to the buyer for various different reasons.
ReasonsTo promote high quantity purchases or receive early payments before a certain due date.For various reasons which are unfavourable during the purchase cycle, such as; poor quality, delay in delivery, etc.
Type of TransactionTrade discount is offered both on cash and credit sale, however, cash discount is only offered on a prompt repayment. Rebate is allowed on both cash and credit sales.
Impact on InvoiceTrade discount is reduced from the original value even before the invoice is generated. Cash discount, on the other hand, is reduced from the final invoice value.The amount of rebate does not affect the original invoice as the adjustment is made post-sale. The effect is shown in trading account & the income statement.
Recording in book of accountsIn case of a trade discount, it is not shown in the books of accounts whereas a cash discount is recorded in the income statement as an expense.It is shown separately in the financial statements as it is provided after the sale has already been recorded.
TimingIt is applied at the time of occurrence of an event i.e. before the sale or purchase has been completed.It is used after an event has been recorded i.e. post the sale or purchase has been completed.
ConsiderationTrade discount is provided considering the quantity bought. Cash discount is provided considering the time of payment.Rebate is provided considering all the reasons for which a trade discount or cash discount is not offered.