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

Question

Quizplus · Accepted Answer

Sales returns and allowances are related to the possibility of lost future sales because they represent dissatisfied customers who may not return in the future. The other statements are true: damaged merchandise is included in sales returns and allowances, they are recorded in a separate contra-revenue account, they may be disclosed in published financial statements, and they are closed to the Income Summary account.

All of the Following Statements Regarding Sales Returns and Allowances