Galaxy sells used videogames for cash and provides a one-week return right. Returns are material and reasonably predictable. Galaxy should:

Question

Quizplus · Accepted Answer

Galaxy should recognize a refund liability associated with estimated returns. This approach follows the matching principle of accounting and ensures that the financial statement reflects the most accurate picture of the company's financial position. It also provides transparency to investors and creditors about potential future cash outflows related to returns. Options A, B, and D are not appropriate as they either delay recognition of revenue or do not provide for future cash outflows.

Galaxy Sells Used Videogames for Cash and Provides a One-Week