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

When a customer returns a product for a refund, which of the following journal entries is most appropriate?

Debit Accounts Receivable; Credit Sales Revenue

Debit Cash; Credit Sales Returns and Allowances

Debit Sales Returns and Allowances; Credit Accounts Receivable

Debit Sales Revenue; Credit Inventory

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Verified step by step guidance

Understand the context: When a customer returns a product, it impacts both the revenue and the accounts receivable or cash, depending on how the original sale was recorded. The return also needs to be tracked separately for reporting purposes.

Identify the correct accounts: Sales Returns and Allowances is used to record the value of returned goods, reducing the total sales revenue. Accounts Receivable is credited to reverse the amount owed by the customer for the returned product.

Determine the journal entry: The correct journal entry for a product return is to debit Sales Returns and Allowances (to increase this contra-revenue account) and credit Accounts Receivable (to decrease the amount owed by the customer).

Understand why other options are incorrect: For example, debiting Cash and crediting Sales Returns and Allowances would only apply if the customer was refunded in cash, which is not specified here. Similarly, debiting Sales Revenue directly is incorrect because returns are tracked separately in the Sales Returns and Allowances account.

Apply the principle: Always ensure that returns are recorded in a way that accurately reflects the reduction in revenue and the reversal of the receivable or cash transaction, maintaining proper financial reporting.