What are trade discount journal entries?

A trade discount journal entry is an accounting term that refers to the amount paid for a good or service as opposed to the list or invoice price, according to Principlesofaccounting.com. For example, a merchant may offer a customer a 20 percent discount on a service priced at $1,000.

The trade discount journal entry, however, would be for only $800, reflecting the price actually paid for the good or service. The general rule is that sales are recorded when an exchange takes place, states Accounting Coach. The measurement of the value of the sale is based on the exchange price, not the list price.