Is purchase returns and allowances a contra asset?
Rachel Davis
Updated on January 05, 2026
Purchases returns and allowances is a contra account to purchases.
How do you record purchase returns and allowances?
Accounting for purchase returns and allowances is simple. In the periodic inventory system, the purchase returns and allowances are recorded into the purchase return and allowances account which is the contra account of the purchases account.
What kind of account is purchase returns and allowances?
Purchase returns and allowances is an account that is paired with and offsets the purchases account in a periodic inventory system. The account contains deductions from purchases for items returned to suppliers, as well as deductions allowed by suppliers for goods that are not returned.
What is the journal entry for purchase returns and allowances?
The journal entries are to debit accounts payable to reduce the amount owed to the supplier by the amount of the allowance, and a credit to purchase returns and allowances to reduce the amount the unsatisfactory items will add to the inventory.
Are purchases returns a debit or credit?
‘Sales returns’ will reduce the income generated from sales (as some of the customers sent the goods back) so go on the debit side. Purchases are an expense which would go on the debit side of the trial balance. ‘Purchases returns’ will reduce the expense so go on the credit side.
What kind of account is purchase returns?
Purchase Returns Account is a contra-expense account; therefore, it can never have a debit balance. The balance will either be zero or credit. The main premise behind accounting for purchase returns is to reflect the books as if no purchase had been originally made.
Is purchase return a real account?
Purchase returns is a nominal account. Generally, purchase returns show zero or unfavourable balance (Credit balance). It can also be termed as contra-expense account as purchase returns reduce our purchase expenses….Purchase Returns.
| Accounts Involved | Debit/Credit | Nature of Account |
|---|---|---|
| To purchase returns a/c | Credit | Nominal |
How do you treat purchase returns?
When the returned to the supplier of the goods, then the cash account or accounts payable account for the cash purchases or credit purchases respectively will be debited with a corresponding credit to purchase return account as there is the return of the goods out of the company to the supplier.
What kind of account is purchase return?
Definition of Purchase Return The account Purchases Returns is a general ledger account that will have a credit balance (or no balance). Its credit balance will offset the debit balance in the Purchases account.
Is purchase return a debit or credit?
Definition of Purchase Return A purchase return occurs when a buyer returns merchandise that it had purchased from a supplier. The account Purchases Returns is a general ledger account that will have a credit balance (or no balance). Its credit balance will offset the debit balance in the Purchases account.
