Sales Returns and Allowances

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Sales Returns and Allowances

The reduction in revenue due to people bringing back previously purchased merchandise and receiving partial refunds for defective merchandise.

Sales returns and allowances are part of the income statement. Sales minus refunds and allowances equal the amount of revenue the company actually received. If sales returns and allowances are too high it is indicative of a problem. Perhaps sales people are buying things to meet sales goals and then returning them. Perhaps the supplier is shipping defective goods. Perhaps your advertising is misleading. A high number of returns don’t pinpoint what the problem is exactly; it just alerts you that there is a problem.

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