What is a contra-revenue account and give examples.

• A. A contra-revenue is a liability account; examples include unearned revenue.
• B. A contra-revenue reduces gross revenue; examples include sales returns and allowances, sales discounts.
• C. A contra-revenue is an asset account; examples include accounts receivable.
• D. A contra-revenue increases gross revenue; examples include product bonuses.

Answer: (B)

A contra-revenue account is used to offset revenue on the income statement by recording reductions in revenue. It lowers gross revenue to arrive at net revenue (net sales). Gross revenue is the total sales before any deductions, and a contra-revenue account typically has a debit balance—the opposite of a revenue account.

Common examples are sales returns and allowances and sales discounts. Sales returns occur when customers return goods, which reduces revenue. Allowances are price concessions granted without a return, also reducing revenue. Sales discounts are reductions given for early payment, which similarly lower revenue.

Net sales are calculated as gross sales minus these contra-revenue amounts, so you can see the actual revenue earned after these reductions.

Why the other concepts don’t fit: unearned revenue is a liability, not a contra-revenue; accounts receivable is an asset, not a reduction of revenue; product bonuses aren’t a standard contra-revenue item and would not conceptually represent a deduction from gross revenue.