Difference Between Allowance For Doubtful Accounts and Sales Returns and Allowances

1. Allowance For Doubtful Accounts is the estimation either on Net Sales (Income Statement-Approach) or on Accounts Receivable (Balance Sheet-Approach) that some portion of Unpaid invoices will not be recovered from customers in future while Sales Returns are returning of goods sold from our customers who find Goods Unsatisfactory, Lower Quality, etc. Sales Allowance is the given to customers when he agrees to retain the goods sold to him at a reduction of Selling Price of good sold.

2. The Journal Entry For Allowance For Doubtful Debts is shown below:

             Uncollectible Accounts Expense a/c      XXX

                                                                    Allowance For Doubtful Accounts a/c     XXX

(Allowance / Provision For Doubtful Accounts Recorded For The Period)

While For Sales Returns And Allowance in the following entry is recorded in the Book or Journal of business:

                     Sales Returns And Allowances a/c      XXX

                                                                            Accounts Receivable a/c        XXX

(Sales Returns & Allowance Recorded On Credit Sales)

3. Allowance For Doubtful Account is an example of Contra Asset Account while Sales Returns & Allowance is an example of Contra Revenue Account.

So, Allowance For Doubtful Debts is an estimation amount to be deducted from relevant Assets on Balance Sheet while Sales Returns And Allowances are actual deduction amount deducted from Gross Sales or Total Sales in Income Statement.