Memorex Disks sells computer disk drives with right-of-return privileges. Returns are material and reasonably predictable. Memorex should:

Question

Quizplus · Accepted Answer

Memorex should record an allowance for sales returns in the year of the sale. This is because the returns are material and reasonably predictable, and therefore it is probable that some of the sales will be returned. Recording an allowance for sales returns will reduce the amount of revenue recognized in the period of the sale, and will also provide an estimate of the amount of returns that will need to be processed in the future. This approach is consistent with the matching principle, which requires that expenses be matched with the revenues they help to generate.

Memorex Disks Sells Computer Disk Drives with Right-Of-Return Privileges