On December 2, a customer returned merchandise, with a selling price of $1,200 purchased on account, to a department store. Ignoring cost of goods sold, which journal entry should the department store prepare? Assume no sales discount was offered for early payment.

Question

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The department store should debit Sales Returns and Allowances for $1,200 and credit Accounts Receivable for $1,200 to reflect the return of merchandise purchased on account. Option A is incorrect because Sales Revenue should be reduced by the amount of the return, not credited. Option B is incorrect because the Accounts Receivable balance is being reduced due to the return, not being paid off. Option D is incorrect because there was no cash transaction involved in this return.

On December 2, a Customer Returned Merchandise, with a Selling