Question

To record the return of goods because they are damaged or defective, which accounting entry should be made?

A) Debit: Sales Revenue, Credit: Accounts Receivable

B) Debit: Cost of Goods Sold, Credit: Inventory

C) Debit: Accounts Receivable, Credit: Sales Revenue

D) Debit: Sales Returns and Allowances, Credit: Accounts Receivable

Answer 1

The correct entry to record the return of goods is to debit Sales Returns and Allowances and credit Accounts Receivable, which reflects the decrease in revenue and the amount the customer owes.

Step-by-step explanation:

The correct accounting entry to record the return of damaged or defective goods is indeed:

- Debit: Sales Returns and Allowances

- Credit: Accounts Receivable

This entry reflects the acknowledgment that the sales transaction will not be completed as anticipated due to the return of damaged or defective goods. The debit to "Sales Returns and Allowances" represents the reduction in expected revenue, as the goods are returned. The credit to "Accounts Receivable" recognizes the decrease in the amount owed by the customer because of the returned goods.

This accounting treatment aligns with the principle of accurately reflecting the financial impact of returned goods on the company's accounts, adjusting both revenue and accounts receivable to reflect the change in the transaction due to the damaged or defective nature of the goods.