BACHELOR OF BUSINESS ADMINISTRATION

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BUSINESS ADMINISTRATION

FINANCIAL ACCOUNTING

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
A company has been successful in reducing the amount of sales returns and allowances. At the same time, a credit card company reduced the credit card discount from 3 percent to 2 percent. What effect will these changes have on the company’s net sales, all other things equal?
A
A. Net sales will not change
B
B. Net sales will increase
C
C. Net sales will decrease
D
either B or C
Explanation: 

Detailed explanation-1: -Sales discounts and sales returns & allowances are contra accounts to Sales and have a normal debit balance. For a sales allowance only the first journal entry, to record the reduction in the amount due, is required since the merchandise was not returned and added back into the inventory of the seller.

Detailed explanation-2: -In the sales revenue section of an income statement, the sales returns and allowances account is subtracted from sales because these accounts have the opposite effect on net income. Therefore, sales returns and allowances is considered a contra‐revenue account, which normally has a debit balance.

Detailed explanation-3: -The sales returns and allowances and the Sales discount are not expense accounts, but both contra-revenue account, which would reduce the revenue account to calculate for net revenue. Thus, the statement is false.

Detailed explanation-4: -What Is Net Sales? Net sales is the sum of a company’s gross sales minus its returns, allowances, and discounts.

There is 1 question to complete.
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