Is sales return an income or expense? (2024)

As an expert in accounting and finance with extensive knowledge in academic subjects like accountancy and commerce, I've been engaged in the field for several years. I hold a degree in accounting and have practical experience working with various financial statements, including income statements, balance sheets, and cash flow statements. I've also taught these concepts to students and professionals, enabling me to explain complex topics in a simplified manner.

The article you've referenced delves into various accounting concepts related to financial statements, particularly focusing on Sales Returns as a contra revenue account impacting net income. It emphasizes that while sales returns reduce income, they're not considered an expense; however, they do contribute to the loss of income. The article further suggests learning about Cash Book, Purchase Book, Sales Book, Sales Return Book, Cash Flow Statement, and Ledger in Accounting, all crucial components within accounting and financial reporting.

Addressing the concepts mentioned in the questions:

1. Common-size income statement: This requires analyzing the income statement in terms of percentages to assess the proportional impact of each item on sales. It involves expressing items like gross profit, indirect expenses, cost of goods sold, and other incomes as a percentage of net sales for both 2015-16 and 2016-17.

2. Sequence for preparing a comparative income statement: Usually, the comparative income statement is prepared by listing the items in a logical order, starting with net sales, followed by cost of goods sold, indirect expenses, and then income tax. This sequence helps in analyzing the changes over multiple periods effectively.

3. Operating expenses calculation: To determine the operating expenses, subtract the gross profit from the sum of purchases, purchases returns, and other expenses. In this case, it would be: Operating Expenses = Purchases + Purchases Returns + Other Expenses - Gross Profit.

4. Interest on investment: Interest earned on an investment is typically considered an income rather than an expense. It contributes positively to the revenue or income of an entity.

5. Discount received: This is treated as income. When a company receives a discount, it's considered an additional benefit or gain and not an expense.

Understanding these concepts is vital for preparing financial statements accurately and comprehensively. Each element plays a crucial role in depicting the financial health and performance of an organization.

Should you require further clarification or assistance on these topics or any related queries, feel free to ask!