Sales allowance

Definition

A sales allowance is a reduction in the selling price of goods granted by the seller, often due to minor product defects or customer dissatisfaction. It does not involve the return of goods but adjusts the amount owed by the buyer.

5 Must Know Facts For Your Next Test

1. Sales allowances are recorded as a debit to Sales Allowances and a credit to Accounts Receivable.
2. They help maintain customer satisfaction by providing partial refunds without requiring product returns.
3. Sales allowances reduce both net sales and gross profit for the period.
4. They are distinct from sales discounts, which are reductions offered for early payment.
5. Proper documentation and authorization are required to process sales allowances in accounting records.

Review Questions

Related terms

Sales Return: A transaction where customers return previously purchased merchandise for a full refund or credit.

Net Sales:

The total revenue from goods sold minus returns, allowances, and discounts.

Accounts Receivable:

Money owed by customers for purchases made on credit, representing an asset on the balance sheet.