Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

2. Transaction Analysis

Journal Entries: Debits and Credits

Financial Accounting

2. Transaction Analysis

Journal Entries: Debits and Credits

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Multiple Choice

Sales returns and sales allowances are ______ accounts and require a debit entry to increase the account.

expense

liability

contra-revenue

asset

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Verified step by step guidance

Understand the concept of a contra-revenue account: A contra-revenue account is used to reduce the total revenue reported on the income statement. Examples include sales returns and allowances, which represent reductions in revenue due to returned goods or allowances granted to customers.

Recognize the normal balance of a contra-revenue account: Contra-revenue accounts have a normal debit balance, which is opposite to the normal credit balance of revenue accounts.

Analyze the transaction type: Sales returns and allowances are recorded as reductions to revenue, so they are classified as contra-revenue accounts rather than expense, liability, or asset accounts.

Determine the journal entry: To increase a contra-revenue account like sales returns or allowances, a debit entry is required. For example, when a customer returns goods, you would debit the Sales Returns and Allowances account and credit Accounts Receivable or Cash.

Apply this understanding to the problem: Since sales returns and allowances are contra-revenue accounts, they require a debit entry to increase the account balance, aligning with the correct answer provided.