Question

The estimated returns inventory account is reported as a _____ on the balance sheet?

1) Current asset
2) Current liability
3) Long-term asset
4) Long-term liability

Answer 1

The estimated returns inventory account is reported as a current liability on the balance sheet, as it represents a future obligation for the company related to returned goods.

Step-by-step explanation:

The estimated returns inventory account is reported as a current liability on the balance sheet. A balance sheet is a financial statement that lists a company's assets and liabilities, detailing what a company owns and owes. In accounting terms, when inventory is estimated to be returned, it is recorded as a current liability because it represents an obligation for the company to accept returned goods and potentially refund customers or provide other goods in exchange. This is consistent with the principle of conservatism in accounting, where businesses should anticipate and record future expenses and liabilities that can be reasonably estimated.