Ace Electronics,which uses a perpetual inventory system,recorded a debit to Sales Returns & Allowances and a credit to Accounts Receivable,along with a debit to Inventory and a credit to Cost of Goods Sold.What business event must have taken place?
A) The customer received a damaged product, but kept the product and asked for a reduction in the price.
B) The customer received a damaged product and returned it.
C) The customer received a discount because the invoice was paid on time.
D) The customer sent in a partial payment and promised to pay the balance next month.

Question

Quizplus · Accepted Answer

A debit to Sales Returns & Allowances and a credit to Accounts Receivable indicate that a customer returned a product and received either a refund or a credit towards future purchases. Additionally, a debit to Inventory and a credit to Cost of Goods Sold indicate that the returned product was removed from inventory and the cost of the product was recognized as an expense. Option A would only result in a debit to Sales Returns and Allowances and a credit to Accounts Receivable, as no inventory would be affected. Option C would result in a discount being taken off the original sale, but not a return of inventory. Option D involves a partial payment, but not a return of inventory.

Ace Electronics,which Uses a Perpetual Inventory System,recorded a Debit to Sales