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A company provides a sales allowance to a customer. How does this affect the company’s income statement?
A) the allowance is not shown on the income statement
B) gross sales are reduced by the amount of the allowance
C) the allowance is included in operating expenses
D) the allowance is included in cost of goods sold
Expert Answer
Dear student …. correct answer is B) gross sales are reduced by the amount of the allowance
A sales allowance is a reduction in the price charged by a seller, due to a problem with the sold product or service, such as a quality problem, a short shipment, or an incorrect price. Thus, the sales allowance is created after the initial billing to the buyer, but before the buyer pays the seller. The sales allowance is recorded as a deduction from gross sales, and so is incorporated into the net sales figure in the income statement.
