Sales Returns Affect Net Cash Collections When a Customer Has

question 48

Multiple Choice

Sales returns affect net cash collections when a customer has the right to return a product for a refund, and the firm can reasonably estimate the amount of returns at the time of sale, U.S.GAAP and IFRS

• A)require that the firm use the allowance method to estimate and recognize the effects of returns.
• B)the selling firm debits a revenue contra account for expected returns to reduce current period revenues to the estimated amount that will not be returned.
• C)require that the firm measures revenues based on the amount of cash it expects to collect from current period sales.
• D)preclude revenue recognition when customers have the right to return goods unless the firm can reasonably estimate the amount of returns.
• E)all of the above

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Definitions:

Equivalent Units for Materials

A metric that converts partially completed goods into the number of complete units with regard to materials only.

Equivalent Units

A concept in process costing that converts partially completed units into a number of fully completed units, facilitating cost calculation.

Conversion Costs

Expenses incurred in the process of converting raw materials into finished products, typically including labor and overhead.

Processing Department

An organizational unit where work is performed on a product and where materials, labor, or overhead costs are added to the product.