Question

Why is using the Purchases Returns and Allowances account preferred to crediting these transactions to Purchases?

Answer 1

Using the Purchases Returns and Allowances account is preferred to crediting these transactions to Purchases because the method shows the value of Purchases for the period separate from the Returns and Allowances.

The information is useful when referring to the frequency of returns and allowances on purchases and the relative values of the two contra accounts.

Explanation:

Some businesses prefer the gross method for accounting for purchases to the net method. Whichever method is adopted yields the same result. However, the gross method gives a more accurate account of activities than the net method.