Question

On March​ 18, James Smith purchased $7,000.00 of furniture from Home Furnishings on account. The cost of the goods was $4,200.00. On March​ 20, Home Furnishings granted the customer a $900.00 sales allowance for goods damaged in transit. Which of the following represents the correct way to record this​ transaction?
A.
Refunds Payable 1,000
Cash 1,000

Merchandise Inventory 600
Estimated Returns Inventory 600
B.
Refunds Payable 1,000
Accounts Receivable 1,000

C.
Sales Revenue 1,000
Cash 1,000

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

Answer 1

Answer:

B.

Refunds Payable 1,000

Accounts Receivable 1,000

Explanation:

Refunds payable is an account on the income statement that is called as a contra revenue account, that is, it movement is in contrary to the direction as revenue. Account is used by businesses when customers return merchandise or goods due to a defective product or any other reason.

Account receivable. This is an account on the balance sheet. The account shows the number of sales the business has been doing base on credit, as opposed to cash sales.