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Sales returns and allowances is a deduction from sales that shows the sale price of goods returned by customers, as well as discounts taken by them to retain defective goods.
Sales return and allowances refer to the sales adjustment as a result of the return of goods or merchandise inventory or a reduction from the original selling price due to damages or defective goods or products. Sales return and allowances are the contra account of the sales revenue account.
Definition. Sales Returns and Allowances is a contra-revenue account deducted from Sales. It is a sales adjustments account that represents merchandise returns from customers, and deductions to the original selling price when the customer accepts defective products.
What Are Sales Returns And Allowances? Sales Returns and Allowances (SRA) are contra-revenue accounts with negative balances. They are used to record product returns and allowances issued to customers.
Sales returns occur when a customer returns goods to the seller due to some fault, while the term sales allowance is used when the buyer agrees to keep the products, but for a lesser price. See the table below on it is present and affects the total revenue in the income statement:
A fundamental concept in sales allowance accounting is the distinction between sales returns and sales allowances. While both involve adjustments to the sales price, sales returns refer to the actual return of goods by the customer, whereas sales allowances are partial refunds or discounts provided without the need for a return.
Sales returns and allowances account for one of the most important categories you'll find on an income statement. They're integral in tracking the quality of your product, consumers' satisfaction with your business, and the profitability of your sales efforts.
Sales returns are goods that customers return to a company due to various reasons. Sales allowances are discounts offered to customers after a company makes sales. However, these do not trade or cash discounts. Both accounts are contra revenues accounts and result in a reduction of a company’s revenues.
With the example of sales return, we have the journal entry for each case scenario as below: Customer returns goods with good condition; Customer returns goods due to the damage; Company provides allowance but no goods are returned; Sales Return without Allowance Account
Sales returns occur when customers return defective, damaged, or otherwise undesirable products to the seller. Sales allowances occur when customers agree to keep such merchandise in return for a reduction in the selling price.