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.
What it is
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?