What Is the Impact of Treating Sales Returns and Allowances

question 69

Multiple Choice

What is the impact of treating sales returns and allowances as a contra revenue but treating sales discounts and credit card discounts as selling expenses?

• A) Gross margin is reduced by sales returns and allowances, sales discounts and credit card discounts.
• B) Gross margin is reduced by sales returns and allowances but all three accounts cause a decrease in profit from operations.
• C) Gross margin is reduced by sales discounts and credit card discounts but all three accounts cause a decrease in profit from operations.
• D) Gross margin is reduced by sales returns and allowance but operating profit is only reduced by sales discounts and credit card discounts.

---

Definitions:

PQ

The product of price (P) and quantity (Q), often used in economics to calculate total revenue or expenditure.

P

Typically refers to "Price" in economic models, representing the monetary value assigned to a good or service in the market.

V

Typically stands for Velocity in economic contexts, referring to the rate at which money circulates in the economy.

Monetary Policy

The process by which a central bank, like the Federal Reserve, controls the supply of money, often targeting an inflation rate or interest rate to ensure economic stability and growth.