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:

Time Value

The idea that presently available money surpasses the value of the same sum in the future, due to potential income it could generate.

Compounded Quarterly

The process of calculating interest on both the initial principal and the accumulated interest from previous periods on a quarterly basis.

Semi-Annually

Occurring twice a year, typically every six months, often used in the context of payments, interest calculations, or reporting periods.