The purpose of the debtors’ allowances journal is to record transactions where goods are returned by debtors due to being faulty or not to specification or where allowances are made due to errors on the invoice. As starting point therefore debtors owe less money after these debtors’ allowances. As debtors owe the business money it is an asset which now decreases due to owing less money. Debtors control should thus be credited as assets decrease on the credit side. The contra entry is debtors allowances and the posting occurs at month end as it is the sales column total that is involved. Applying the double entry principle, debtors’ allowances needs to be credited with debtors control as contra entry.
We still need to deal with the cost of sales column total. As goods are returned by the debtors the trading stock of the business increases. As the trading stock now belongs to the business again it is an asset. Assets increase on the debit side. Therefore debit trading stock with cost of sales as contra entry at month end. Applying the double entry principle cost of sales should be credited with trading stock as contra entry.
As a side note – some of the cost of sales column lines will be empty as the business don’t always receive goods back in stock i.e. damaged goods or correction of invoice errors.