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solniwko
2 months ago
8

Holly uses a perpetual inventory system. Holly sells $3,500 of blue jeans. The customer later brings $420 of blue jeans back to

Holly because they are defective. Those blue jeans had a cost of $140. The customer agrees to keep the blue jeans and Holly agrees to a $140 allowance. Which of the following is one of the entries that Holly will use to record the return?
A. Debit Cash for $140 and credit Inventory for $140.B. Debit Inventory for $140 and credit Cash for $140.C. Debit Cash for $140 and credit Sales Revenue for $140.D. Debit Sales Revenue for $140 and credit Cash for $140.
Business
1 answer:
harina [3.8K]2 months ago
8 0

Response:

D. Record a debit of $140 to Sales Revenue and a credit of $140 to Cash.

Clarification:

The journal entry for documenting the sale:

Dr Cash 3,500

Cr Sales revenue 3,500

Dr Cost of goods sold XY

Cr Merchandise inventory XY

The journal entry to account for the allowance on the defective items:

Dr Sales revenue (or sales returns and allowances) 140

Cr Cash 140

The sales returns and allowances account serves as a contra revenue account that decreases overall sales revenue. In this circumstance, the company solely utilizes the sales revenue account, which is diminished through debiting.

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