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:

Indorse

Refers to the act of signing the back of a negotiable instrument, such as a check, in order to transfer ownership or to approve the terms.

UCC

The Uniform Commercial Code, a set of laws that govern commercial transactions in the United States.

Negotiation

Negotiation is a process of discussion aimed at reaching an agreement where two or more parties with different needs and goals discuss an issue to find a mutually acceptable solution.

Holder

A person in possession of a document of title or an instrument payable or indorsed to him, his order, or to bearer.