A purchase allowance is a reduction in the buyer's cost of merchandise that it had purchased. The purchase allowance is granted by the supplier because of a problem such as shipping the wrong items, the incorrect quantity, flaws in the goods, etc. In the case of a purchase allowance, the buyer does not return the merchandise to the supplier.

Under a periodic inventory system, the buyer will record the purchase allowance with 1) a credit to the account Purchase Allowances or to the account Purchase Returns and Allowances, and 2) a debit to Accounts Payable. (The supplier will record the allowance with a debit to Sales Allowances and a credit to Accounts Receivable.)

The buyer will offset the debit balance in its Purchases account with the credit balance in Purchase Allowances as part of its computation of net purchases.

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