Question

Which of the following is an example of a contra-revenue account? (Check all that apply)

a) Sales returns and allowances
b) Discounts allowed
c) Cost of goods sold
d) Freight-out

Answer 1

Contra-revenue accounts are used to record reductions in revenue, and the correct examples of contra-revenue accounts are sales returns and allowances and discounts allowed.

Step-by-step explanation:

Contra-revenue accounts are accounts that are used to record reductions in revenue from gross sales. They offset the revenue account on the income statement and are presented as deductions from the gross sales to arrive at a net sales figure. The examples of contra-revenue accounts include:

• Sales returns and allowances: These account for the goods that are returned by customers or the reduction in the selling price due to allowances.
• Discounts allowed: This account reflects reductions in price given to customers typically as an incentive for either early payment or as part of a sales promotion.
• Cost of goods sold (not a contra-revenue account)
• Freight-out (not a contra-revenue account)

Therefore, the correct answers for examples of contra-revenue accounts are sales returns and allowances and discounts allowed.