What Is the Impact of Treating Sales Returns and Allowances

question 97

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

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Definitions:

Anode

Positive electrode.

Cathode

Negative electrode.

Diode

A two-terminal, solid-state, semiconductor device that allows current flow in one direction only. Acts like a sort of electrical one-way check valve.

Graphical User Interface (GUI)

The menu-driven display screen used in Windows-driven software.