What is contra revenue?

Contra revenue is a deduction from gross revenue, which results in net revenue.

Contra revenue transactions are recorded in one or more contra revenue accounts, which usually have a debit balance (as opposed to the credit balance in the typical revenue account). There are three commonly used contra revenue accounts, which are:

• Sales returns. Contains either an allowance for returned goods, or the actual amount of revenue deduction attributable to returned goods.
• Sales allowances. Contains either an allowance for reductions in the price of a product that has minor defects, or the actual amount of the allowance attributable to specific sales.
• Sales discounts. Contains the amount of sales discount given to customers, which is usually a discount given in exchange for early payments by customers.

You can also record contra revenue within the sales account, but this means that it will be buried within the total amount of revenue reported, so that management cannot determine the amount of the contra revenue. If your company has minimal contra revenue activity, then it is acceptable to record these transactions within the revenue account.

Contra revenue accounts appear on the income statement, as a deduction from gross sales.

Related Topics

What is accrued revenue?
What is unearned revenue?
What is unrecorded revenue?