BUISENESS MANAGEMENT
MERCHANDISING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Because purchase allowances are additional assets.
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Because purchase allowances are added to the value of total merchandise.
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Because purchase allowances are deductions from the total value of the total purchases.
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Because purchase allowances are merchandise bought are assets until sold.
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Detailed explanation-1: -Purchase Allowances is a contra expense account with a credit balance that records the value of purchase cost deductions granted by a seller in exchange for a buyer retaining damaged, incorrect or otherwise faulty goods instead of returning them to the seller.
Detailed explanation-2: -Accounting for a Purchase Allowance When a supplier grants a purchase allowance, the buyer records the amount of the allowance as a debit to accounts payable and a credit to inventory.
Detailed explanation-3: -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.
Detailed explanation-4: -In the sales revenue section of an income statement, the sales returns and allowances account is subtracted from sales because these accounts have the opposite effect on net income. Therefore, sales returns and allowances is considered a contra‐revenue account, which normally has a debit balance.