Purchase Allowance
Accounting glossary · Understand, connect, apply
A purchase allowance is a reduction in the amount a buyer owes or has paid when the buyer keeps goods despite a problem such as damage or incorrect specifications.
Example
A supplier grants a $30 allowance on damaged goods the buyer retains, reducing the related purchase cost or payable as appropriate.
Remember the difference
An allowance differs from a return, where goods are sent back. The accounting entry depends on the inventory system used.
Examples are simplified for learning. Where a term depends on US law, IFRS, US GAAP or a historical rule, check the context explained above and the requirements relevant to your course.
Study references: OpenStax financial accounting and managerial accounting. For reporting requirements, consult the applicable IFRS Standards or FASB guidance. US tax terms should be checked against the relevant tax-year IRS instructions.
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