Question

The sales returns and sales allowances accounts are classified as

Answer 1

These two Sales Revenue accounts (the sales returns and sales allowances) are classified as Contra accounts.  They have debit balances unlike the Sales Revenue account.

• The purpose of their creation is to maintain the Sales Revenue account at its gross amount for measure purposes.

• The Sales Returns account is the General Ledger account for recording goods returned by customers.  It reduces the Accounts Receivable account, which is credited with Sales Returns.

• The Sales Allowances account records allowances granted to customers for defective goods, which reduce their balances.

Thus, the two sales accounts are contra accounts and they have debit balances.

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