Contra Revenue

What is Contra Revenue?

Definition: Contra revenue represents negative adjustments to gross sales that determine a company's net revenue figure on financial statements.

Key points:

• Unlike expenses (which are costs incurred to generate revenue), contra revenue directly reduces the top-line sales figure
• Common examples include product returns, sales discounts, and allowances for damaged merchandise
• These items appear as deductions on the income statement before calculating gross profit

In accounting practice, these revenue offsets provide transparency by showing both the initial sales volume and subsequent adjustments. This separation helps management evaluate customer satisfaction, discount effectiveness, and product quality issues that impact the bottom line.

Contra Revenue Example:

If a retailer records $500,000 in gross sales for a quarter, but customers return $20,000 in merchandise, the company offers $15,000 in promotional discounts, and provides $5,000 in allowances for product defects, the resulting net revenue would be $460,000 ($500,000 - $40,000 in total contra revenue).