What type of account is Purchases Returns and Allowances?Multiple ChoiceContra RevenueRevenueContra ExpenseExpense

Step 1: Break Down the Problem

To determine the type of account Purchases Returns and Allowances represents, we need to analyze its function in accounting.

Step 2: Relevant Concepts

• Contra Revenue: Typically accounts that reduce total revenue.
• Revenue: Income earned from normal business operations.
• Contra Expense: Accounts that reduce total expenses.
• Expense: Costs incurred to earn revenue.

Purchases Returns and Allowances account is used to record returns or allowances for purchases made, which ultimately reduces the total purchase expense.

Step 3: Analysis and Detail

1. When goods are returned, the purchase amounts decrease, which essentially reduces the expenses incurred in the cost of goods sold.
2. It is treated as a reduction in the expense (cost of goods sold) rather than as an actual revenue-generating account.

Step 4: Verify and Summarize

Considering the explanation above, Purchases Returns and Allowances can be identified as a contra expense account because it reduces the total purchase expenses.

Final Answer

Purchases Returns and Allowances is classified as a Contra Expense account.