Final answer:
A sales allowance decreases the amount owed by the customer for merchandise that is retained by the customer, often due to a minor defect or issue.
Step-by-step explanation:
A sales allowance is a reduction in the amount that a customer owes to the business after they have purchased goods or services. This usually takes place when the customer encounters some issue with the product that does not necessarily warrant a return, but where some form of discount or allowance is given for keeping the deficient item. Therefore, the correct answer to the question is:
a. decreases; retained.
This means that when a customer decides to keep an item that may have a minor defect or issue, the seller may give them a sales allowance to compensate for the problem, which decreases the overall amount the customer owes for the merchandise.