When a vendor is exposed to continued risks of ownership because of potential return of the product, which of the following accounting procedures should NOT be used?
A) recording the sale, and accounting for returns as they occur in future periods
B) not recording the sale until all return privileges have expired
C) recording the sale, but reducing revenue by an estimate of future returns
D) recording the sale, but ignoring future returns

Question

Quizplus · Accepted Answer

Ignoring future returns is not a proper accounting procedure because it ignores the potential risks of ownership for the vendor. All other options account for the possibility of future returns in some way, either through recording the sale with the expectation of future returns (A and C) or waiting until return privileges have expired before recording the sale (B).

When a Vendor Is Exposed to Continued Risks of Ownership