Define discounts. How many types of discounts are there?

Discount – A reduction in amount, whether to encourage more purchases or prompt payment is called discount, Discount may be classified into: - - Trade discount - Cash Discount - Trade discount. It is an allowance made to a customer it he purchases goods above a certain quantity or an amount. The discount so allowed is reduced from the sale value and the sale or purchase is recorded in the books at the net value. - Cash Discount. It is an allowance to encourage prompt payment of amount due. Cash discount, received or allowed is recorded separately in the books.