Sales returns and allowances
Sales returns and allowances is a contra-revenue account that reduces reported sales for goods returned or price reductions granted, kept separate from the original sale so managers can see return rates directly.
See it move
A retailer records €50,000 of gross sales for the month. Customers return faulty goods worth €1,200, and the retailer grants a further €300 in price allowances, giving total returns and allowances of €1,500. Net sales is €50,000 minus €1,500, or €48,500 — with both figures kept visible, not merged into one.
The formula
Variables
- Total invoiced sales revenue before deductions (€)
- Goods returned plus price reductions granted, recorded separately (€)
The revenue figure that flows into the rest of the income statement, after removing returned goods and granted allowances.
Check yourself
A company records gross sales of €82,000 for the quarter. Customers return goods originally invoiced at €2,400, and the company grants a further €600 in price allowances for minor product defects that customers agreed to keep. What is net sales for the quarter?