What is the impact of treating sales returns and allowances as a contra revenue but treating sales discounts and credit card discounts as selling expenses?
A) Gross margin is reduced by sales returns and allowances, sales discounts and credit card discounts.
B) Gross margin is reduced by sales returns and allowances but all three accounts cause a decrease in profit from operations.
C) Gross margin is reduced by sales discounts and credit card discounts but all three accounts cause a decrease in profit from operations.
D) Gross margin is reduced by sales returns and allowance but operating profit is only reduced by sales discounts and credit card discounts.

Question

Quizplus · Accepted Answer

Sales returns and allowances reduce gross margin as they are contra revenue accounts. Sales discounts and credit card discounts, treated as selling expenses, do not affect gross margin but reduce operating profit.

What Is the Impact of Treating Sales Returns and Allowances