What are 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. This contra account reduces the total amount of purchases made, which therefore also reduces the ending inventory balance.

Presentation of Purchase Returns and Allowances

The purchase returns and allowances account does not usually appear in the financial statements, since it generally has a minor account balance, and so is merged into other related accounts for presentation purposes.