All Of The Following Statements Regarding Sales Returns And Allowances Are True Except
Sales returns and allowances are components of the sales process that allow customers to return or exchange products and services they have purchased and for sellers to adjust the customer invoice amount accordingly. The following statements are true regarding sales returns and allowances except.
A Reduction in the Selling Price Because of Damaged Merchandise is Included in Sales Returns and Allowances
Although a reduction in the selling price of damaged merchandise is typically included in sales returns and allowances, it is not always the case. Depending on the terms of the sale, the seller may be required to accept a return for damaged merchandise even if no credit or refund is given. Additionally, if the damage is minor and the customer is willing to accept the discounted item, the seller may choose to issue an adjustment to the customer invoice instead of accepting a return.
There is No Relationship Between Sales Returns and a Reduction in the Selling Price
The relationship between sales returns and a reduction in the selling price depends on the terms of the sale. Generally, when goods are returned or exchanged, the customer receives a refund equal to the original selling price. This refund may be issued in the form of a credit on the customer’s account or as a cash payment. In some cases, a reduction in the selling price is given in lieu of a return or exchange. When this occurs, the customer invoice is adjusted to reflect the new price and a credit is issued for the difference.
Sales Returns and Allowances Must be Recorded within the Selling Period
When a customer returns goods or requests an adjustment to their invoice, the seller must record the sales return or allowance within the selling period. To properly record the transaction, the seller must debit the sales returns and allowances account by the selling price and credit the appropriate tax liability account by the taxes collected on the original sale. This ensures that the correct amount of sales is reported on the seller’s financial statements.
Sales Returns and Allowances Reduce the Net Revenue for the Period
When sales returns and allowances are recorded, they reduce the seller’s net revenue for the period. This is because the original sales amount is decreased and the cost of goods sold is not adjusted. Additionally, when sales returns and allowances are issued, the seller may be unable to collect the applicable taxes, resulting in a further reduction in net revenue. Despite this, returns and allowances may be beneficial to the seller in the long run as they may help to improve customer satisfaction.