The entry to record a return by a credit customer of defective merchandise on which no sales tax was charged includes
A) a debit to Sales and a credit to Accounts Receivable.
B) a debit to Sales and a credit to Sales Returns and Allowances.
C) a debit to Sales Returns and Allowances and a credit to Accounts Receivable.
D) a debit to Accounts Receivable and a credit to Sales Returns and Allowances.

Question

Quizplus · Accepted Answer

When a credit customer returns defective merchandise on which no sales tax was charged, the entry should include a debit to Sales Returns and Allowances and a credit to Accounts Receivable. This is because Sales Returns and Allowances is a contra account to Sales, and it is used to record the return of defective merchandise. A debit to Sales would imply that the merchandise was sold initially, which is incorrect. Similarly, a debit to Accounts Receivable would imply that the customer still owes money for the defective merchandise, which is not the case.

The Entry to Record a Return by a Credit Customer