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%.
For Accounting Practice
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.
Table Format – Difference Between Discount and Rebate
|Definition||Discount 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.|
|Reasons||To 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 Transaction||Trade 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 Invoice||Trade 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 accounts||In 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.|
|Timing||It 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.|
|Consideration||Trade 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.|