Trade discount
In one sentenceA reduction in the list price that the seller gives large buyers or wholesalers; it is deducted on the invoice itself and is not recorded in a separate account.
Simply put
The list price is the advertised price, but a wholesaler buys at a lower price. This difference is a trade discount shown on the invoice, and the purchase and sale are recorded at the net amount after it.
VAT is calculated on the price after the trade discount, because the amount after the discount is the actual value of the supply.
Worked example
A spare parts store bought goods with a list price of 10,000 SAR at a 10% trade discount.
Trade discount: 10,000 × 10%1,000 SAR
Invoice value before VAT: 10,000 − 1,0009,000 SAR
VAT: 9,000 × 15%1,350 SAR
Invoice total: 9,000 + 1,35010,350 SAR
Don't confuse it with
Discount receivedA discount received comes after the invoice because of early payment, while a trade discount is calculated before the invoice is issued.
in FullScreen ERP
The system supports price lists and automatic adjustment of selling prices. Sales and POS