How must products be accounted for when they are transferred with a right of return?

Question

Quizplus · Accepted Answer

When products are transferred with a right of return, two accounting entries must be made: one for the sale of the product and one for the potential return of the product. Therefore, the sale of the product should be recognized as revenue and an asset (e.g. cash or accounts receivable) should be credited. At the same time, a refund liability should be recognized on the balance sheet as a potential obligation to the customer who may return the product. Therefore, both A and B are required.

How Must Products Be Accounted for When They Are Transferred