If a buyer agrees to retain merchandise that is defective because the seller is willing to reduce the selling price, this transaction is known as a purchase

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The transaction in which a buyer agrees to keep merchandise that is defective because the seller is willing to reduce the selling price is known as a purchase allowance. The allowance is a reduction in the selling price of the merchandise and is intended to compensate the buyer for the inconvenience and cost of dealing with the defects. A purchase discount is a reduction in the selling price of merchandise offered by the seller to the buyer as an incentive for prompt payment. A return occurs when a buyer sends merchandise back to the seller because it is defective or for some other reason. A contra asset is an asset account with a credit balance that reduces the total value of the asset reported on the balance sheet.

If a Buyer Agrees to Retain Merchandise That Is Defective