Q5-10RQ - Horngren'S Financial And Managerial Accounting

Question

What is a purchase return? How does a purchase allowance differ from a purchase return?

Step-by-Step Solution

Answer

Purchase returns are the service provided to the customers to return the goods bought from the seller. 

Purchase allowances are the additional incentives granted by a business to the purchasers. 

Meaning of Purchase

In accounting, the term “purchase” refers to the acquisition of goods or services for a fixed consideration that is meant to be resold and help in generating the revenues for a business concern. 

Meaning of purchase return and the difference between a purchase return and a purchase allowance

Purchase returns refer to the facility provided by the businesses to their customers for returning the purchased goods due to any damage, defect, or any other reason. 

On the other hand, purchase allowances are the additional incentives allowed by a business to a buyer to keep the goods that are not “as ordered.” 

Both purchase returns and purchase allowances decrease the cost of goods sold of a business concern.