Which of the following is a valid name for a contra-revenue account?

• A. Sales Returns and Allowances
• B. Accounts Receivable
• C. Revenue
• D. Interest Income

Answer: (A)

Contra-revenue accounts reduce the amount of revenue reported, and they have the opposite (debit) balance of revenue accounts, which usually carry a credit balance. Sales Returns and Allowances records reductions in revenue when customers return goods or receive allowances, so it directly lowers gross sales to yield net sales. On the income statement, Net Sales = Gross Sales minus Sales Returns and Allowances (and minus Sales Discounts if applicable). The other options describe assets or regular revenue accounts, not contra-revenue: Accounts Receivable is an asset; Revenue and Interest Income are normal revenue accounts with credit balances.