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Why is a sales return or allowance usually recorded in the Sales Returns and Allowances account...

Why is a sales return or allowance usually recorded in the Sales Returns and Allowances account rather than being debited to the Sales account?

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Answer #1
  • Sales return or Allowances are recorded in separate Sales return & Allowance account rather than being debited to Sales account because of best practices of financial reporting requirement.
  • The aim is to know “gross sale”, “Sales return & allowances” separately, and then calculating “Net sales”.
  • If the same are debited to Sales account, one would not know how much was Gross Sale.
    The same also helps in estimating how much % of sales the customer usually returns.
    This helps in taking adequate measures to reduce ‘Sales returns’.
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