All of the following statements regarding sales returns and allowances are true except:
A) Sales returns and allowances are rarely disclosed in published financial statements.
B) Sales returns and allowances are recorded in a separate contra-revenue account.
C) There is no relationship between sales returns and allowances and the possibility of lost future sales.
D) Sales returns and allowances are closed to the Income Summary account.
E) A reduction in the selling price because of damaged merchandise is included in sales returns and allowances.

Question

Quizplus · Accepted Answer

Sales returns and allowances can have a relationship with the possibility of lost future sales as dissatisfied customers may choose to not purchase from the company in the future. The other statements are true: sales returns and allowances are typically recorded in a contra-revenue account, reductions in selling prices due to damaged merchandise are included in returns and allowances, and they are closed to the Income Summary account at the end of the period. Additionally, while some companies may not disclose the specific amount of returns and allowances, they are required to report them in the financial statements.

All of the Following Statements Regarding Sales Returns and Allowances