Final answer:
Recognizing returns only when they happen goes against the accrual basis of accounting and may result in misleading financial statements. To avoid this issue, revenue should be recognized when earned, and expenses matched with generated revenue. Usually, the accounts receivable account is debited under accrual accounting for delivered goods or services not yet paid for.
Step-by-step explanation:
The problem with recognizing returns only at the time they happen is that this approach does not align with the accrual basis of accounting, which requires that revenues be recorded when they are earned, not necessarily when cash is received. This could lead to misleading financial statements, as they might not accurately reflect the company's financial performance and condition during a certain period.
To avoid this problem and adhere to the accrual accounting principles, one should recognize revenue when it is earned and match expenses with the revenue they help to generate. This aligns with the matching principle, ensuring that the financial statements more accurately reflect the economic reality of transactions.
To make the correct accounting entry under the accrual basis, the account that should be debited usually depends on the nature of the transaction. For instance, if a company delivers goods or provides services, an accounts receivable account should be debited if payment has not yet been received, reflecting the business's right to receive money for the provided goods or services.