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Contra revenue refers to deductions from gross revenue that result in net revenue. It includes items such as sales returns, discounts, and allowances that are deducted from gross sales to arrive at a company's total net sales.
For instance, if a company sells a product but later accepts it back for a refund, the sale is reversed through a contra revenue account. Similarly, discounts given at the point of sale also reduce the total revenue. It's important to track contra revenue as it impacts the net revenue reported on the income statement, which in turn affects the business's profitability and overall financial health.
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