Zhang Corporation returned $6000 of defective goods to Meli Inc.Meli has a strict policy of no cash refund.Meli should
A)write off the account receivable.
B)issue a credit memo to Zhang.
C)wait until Zhang places its next order to record the return.
D)not adjust their accounting records since $6000 is not material for Meli.

Question

Quizplus · Accepted Answer

Meli Inc. should issue a credit memo to Zhang Corporation for the returned goods. This will reduce the amount owed to Meli by Zhang and will serve as evidence of the return in both company's accounting records. While the amount of $6000 may not be material for Meli Inc., failing to adjust their accounting records for the return could result in inaccurate financial statements. Waiting for Zhang to place its next order would delay recognizing the return and could create confusion in the future. Writing off the account receivable would not be appropriate since there is still a balance owed by Zhang to Meli.

Zhang Corporation Returned $6000 of Defective Goods to Meli Inc