Question

Q : York Inc. records a year-end adjustment for estimated sales returns and allowances. As a result of this entry, York's financial statements will change as follows:

Answer 1

The year-end adjustment for estimated sales returns and allowances helps to provide a more accurate picture of a company's financial position by accounting for potential returns and allowances that may impact its sales revenue.

Step-by-step explanation:

The year-end adjustment for estimated sales returns and allowances is a common practice in accounting. This adjustment is made to reflect the expected amount of returns and allowances that a company will have based on historical data. When York Inc. records this adjustment, its financial statements will change to reflect the estimated decrease in sales and corresponding increase in accounts receivable.

For example, if York Inc. estimates that 5% of its sales will be returned or allowed, and its total sales for the year were $1,000,000, the adjustment would be $50,000. This $50,000 would be subtracted from the sales revenue and added to the allowance for sales returns and allowances on the balance sheet.In summary, the year-end adjustment for estimated sales returns and allowances helps to provide a more accurate picture of a company's financial position by accounting for potential returns and allowances that may impact its sales revenue.