Definition: Reallowance is a concept in accounting that refers to the process of allowing certain transactions or events to be reversed, often for tax purposes. This reversal is typically done by adjusting entries in the financial statements such as income statement and balance sheet to correct errors or inconsistencies. For example, suppose a company has made an error in its financial records and needs to reverse this error to align with current accounting standards. Reallowance would involve correcting the incorrect entry in the financial statements to reflect the corrected information.