Differentiate between the following paired terms:
(a) Trade discount and cash discount
(b) Branding and packaging
(c) Indemnity and compensation
(d) cash receipt and invoice
(e) Credit sales and hire purchase.
Explanation
(i) Differences Between Trade Discount / Cash Discount.
Trade discount is a reduction in price of goods given to a customer so as to encourage him to continue to buy more from the seller, or to make some profit. It is a reduction in the catalogue price while cash discount is a reduction in the price given to a customer to encourage him to pay promptly. It reduces the incidence of bad debts.
(ii) Branding/Packaging: Branding is the act of attaching a trade name to a product so as to distinguish it from products of other firms. Branding allows for standardization of goods while packaging is the act of introducing good container for a product so as to make it look attractive. It is also for protecting the product and aids its handling.
(iii) Indemnity/Compensation: Indemnity is an arrangement where an insured is returned to his former position just before the risk insured against occurred e.g. fire insurance while compensation means paying money to the insured based on estimates because indemnity is not possible. A typical example is life policy, where life cannot be restored.
(iv) Cash Receipt/Invoice: Cash receipt is issued to a customer once he pays for the goods purchased wither by cash or cheque while invoice is an evidence of credit sale stating terms of payment and details of goods sold.
(v) Credit Sale/Hire Purchase: A credit sale is an arrangement where goods are sold to a consumer with a promise to pay at a later date. The ownership passes to the buyer immediately while hire purchase is a sales agreement where the buyer pays a deposit and then agrees to pay the balance on installment basis. The ownership remains with the seller until the last installment is paid.