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

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This transaction is known as a sales allowance, which is a reduction in the selling price of the defective merchandise that the customer agrees to retain. This is different from a return, which involves the customer returning the merchandise for a refund, and a discount, which is a reduction in the selling price for reasons other than defectiveness. A contra asset is a type of account that is used to offset the balance of another asset account, and is not related to this transaction.

If a Customer Agrees to Retain Merchandise That Is Defective