What are sales returns and allowances?

Sales return shows the sale price of goods returned by customers. It is deducted from sales or gross sales in the income statement.

It is a contra revenue account that represents returns from the customers and deductions to the original selling price, in case of any defective product received by the customer or any other manufacturing default.

Sales allowances arise when any customer accepts the product at a lower price than the original price or, in other words, a reduction in the price charged by a seller, due to any problem related to the sold product like a quality issue, an incorrect price charged or shipment issue.

Sales allowances are created before the final billing is paid by the buyer.

Journal entry for sales return and allowances:

• Sales Return Account is debited because it is reverse of Sales Account which is credited at the time of sale.
• Account Receivable Account is credited to reverse the debtors debited at the time of sale.
• Hence Sales Return entry is just reverse of the entry recorded at the time of sale.