Calculating trade discount in journal entries involves determining the reduced price offered to customers who purchase products or services in bulk. For instance, a business may offer a trade discount of 10% on orders over $1000, meaning the customer pays $900 instead of the full $1000.
Trade discounts have gained importance due to their benefits, such as enhanced customer loyalty, increased sales, and improved cash flow. Historically, the concept of trade discounts emerged during the Industrial Revolution, when manufacturers sought ways to encourage bulk purchases.