Question

On March​ 18, James Smith purchased​ $5,000 of furniture from Home Furnishings on account. The cost of the goods was​ $3,000. On March​ 20, Home Furnishings granted the customer a​ $1,000 sales allowance for goods damaged in transit. Which of the following represents the correct way to record this​ transaction?
A) Sales Revenue 1,000
Cash 1,000
,
B) Refunds Payable 1,000
Cash 1,000

Merchanidse Inventory 600
Estimated Retuns Inventory 600

C) Refunds Payable 1,000
Accounts Receivable 1,000

D) Sales Returns and Allowances 1,000
Cash 1,000

Answer 1

Answer: C

Refunds Payable 1,000

Accounts Receivable 1,000

Explanation:

Home Furnishings will DEBIT Refunds Payable account with $1000 to show for the value of goods that will be paid out to James Smith for goods damaged in transit. While Accounts Receivables will be CREDITED with $1000 to account for the reduction in the total amount of receivables as at March 20th.