Sales and Return Allowances

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Definition: Sales and Return Allowances

Sales and return allowances is a contra-revenue account where-in the amount refunded after return of sold merchandise is recorded or the allowance made for some defective merchandise is recorded.


This amount is subtracted from sales to arrive at net sales. Recording sales and return allowances as a separate account allows management to calculate the sales and return allowances as a percentage of total sales.


This figure is important from management's perspective as high return percentage may indicate presence of serious problems with product or dispatch procedure etc.

 

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