 Sales returns and allowances. Credits you allow customers for return merchandise and any other allowances you make on sales are deductions from gross sales in figuring net income. So this one's a little bit confusing because there's a timing difference issue and we've got this situation of like net sales versus an expense. So for example, if you made a sale in say 2021 and then in 2022, they've returned the item if it was merchandise, for example, negating the sale that you made in 2021. So then you might say, well, the sale that I had and I pay taxes on in 2021 isn't really legitimate because I had to return the money and they reversed the sale in 2022. So am I gonna go back to 2021, amend the return, reduce the sales amount in 2021? No, that would be tedious. Instead, we wanna take care of it in the current year. So what could we do in the current year? We could reduce the sales in the current year but we don't really like doing that because the sale actually happened last year in 2021. So sales or revenue, usually we like it only to go up. We don't like reducing sales even though there was a reversal in this case. Instead, we create a Contra asset account. We call it is a net which is returns and allowances. So that means when we talk about our sales line we've got sales minus the returns and allowances which isn't an expense but kinda acts like an expense to get to the net sales instead of the growth sales which is different than net income and then we have the expenses. It's similar to having like a bad debt situation. If it was a, if you just think someone's not gonna pay you we would record it as an expense of bad debt instead of reversing sales, right? If it's inventory, oftentimes we put it in net sales which is a Contra sales account. Okay, advanced payments. Special rules dealing with an accrual method of accounting for payments received in advance are discussed in chapter two under accrual method. So note that if you are on an accrual method you're not gonna record revenue until you get paid generally. Right, so I mean, I'm sorry on an accrual method you're gonna record revenue when you do the work and typically you do the work at the same point in time or you do the work before you get paid. If you're a bookkeeper you might do the work before build the client and then get paid. If you're a restaurant you probably do the work at the same point in time that you get paid but you could have situations where they give you money in advance. If they give you money in advance in an accrual method you wouldn't record the revenue until you earn the money. So if they give you an advanced payment as a lawyer to do work in the future then when you do the work under an accrual method that's when you would record the revenue not when you got the money before doing the work but that's like an exception for the IRS because they're gonna say you've got the money you've committed to doing the work, we want our piece of it. So you wanna think about those advanced payments for taxes do you have to include them in income even if using an accrual method at the point in time you've received them. Insurance proceeds, if you receive insurance or another type of reimbursement for a casualty or theft loss you must subtract it from the loss when you figure your deduction. You cannot deduct the reimbursed part of a casualty or theft loss. In other words, if you get insurance proceeds the proceeds should be compensating you for a casualty typically for the insurance. So you can't deduct the reimbursed part of the casualty or theft loss because you don't really have a theft loss in that case you would be netting it out. You can imagine this happening in a couple of different ways, right? You had a loss of property and then the insurance is covering it. So you can imagine you put the loss on the books as a loss like an expense or something like that. And then when you got the insurance proceeds you put them on their income. Income minus expenses nets out. Or more likely you're gonna say the insurance proceeds aren't really income what they're doing is they're putting you back to where you should be given this weird this unusual event. So that would mean that you wouldn't record either the expense or the insurance proceeds because they net out against each other, right? Because you didn't really, you're not gonna write off a loss if you've got reimbursed for the loss for the insurance proceeds which in theory are bringing you back to whole. So for more information on casualty or theft losses you can see publication 547.