Knowee
Questions
Features
Study Tools

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

Question

What type of account is Purchases Returns and Allowances?

Multiple Choice

  • Contra Revenue
  • Revenue
  • Contra Expense
  • Expense
🧐 Not the exact question you are looking for?Go ask a question

Solution

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.

This problem has been solved

Similar Questions

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

The sales returns and allowances account is an example ofGroup of answer choices

Which is not an expense account indeed?

The Purchases account is:Multiple Choicea permanent account.a temporary account.a subsidiary account.a liability account.

The respective normal account balances of Purchases, Purchase Discounts, and Freightin are

1/3

Upgrade your grade with Knowee

Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.