Question

Which of the following is NOT True about accounting for Merchandise Returns?

A) By the End of the accounting period, a refund liability is established for the amount of returns that the company estimates wull occur in the future.

B) The Refund Liability is credited when a customer makes a return

C) Returned inventory also must be accounted for when considering sales returns

D) Accounting for sales returns ensures that net revenue excludes sales of goods that are expected to be returned

Answer 1

correct option is "B"- The Refund Liability is credited when a customer makes a return .

when inventory sold is estimated to be returned in future ,a refund liability of amount received is to be created.when customer actually returns the inventory , refund liability is debited and cash is credited.

so refund liability is debited when customer actually makes a return.

Reason for other option:

a)A refund liability for estimated future return is established at the end of reporting period (The statement is true)

c)When establishing liability ,estimated returned inventory must also be accounted for by debiting estimated returned inventory and crediting cost of goods sold.

d)Accounting for estimated sales return ensures that revenue reported is net of returns .