What are Sales Allowances

Sales Allowances are given to buyer by the seller when the buyer agrees to retain the goods at a price below standard. As the goods are not having the quality level required by the buyer, so the seller offers for the reduction in the price level which is accepted by the buyer and does not return the goods to seller. It is a Contra Revenue Account, so it is deducted from the Total or Gross Sales in Income Statement / Profit And Loss Account.

Example, Suppose, Mr. A sold 5 Fans worth Rs. 5000 (Rs. 1000 each) to Mr. B. One fans is not in a good condition, but Mr. B accepts and retains it on the reduction of 50% of price (Rs. 500) offered by Mr. B. This amount of Rs. 500 is treated a Sales Allowance and Mr. A records it in Sales Allowance Account of business. The following Journal Entry is passed:

                                          Sales Allowance a/c    500

                                                                          Mr. B   500

(Sales Allowance of Rs. 500 is Given To Mr. B)

Sales Allowance of Rs. 500 is deducted from Gross Sales in Income Statement.