Which of the following best describes the difference between a sales return and a sales allowance?

• A. A sales return increases net sales, while a sales allowance decreases net sales.
• B. A sales return affects only cash sales, while a sales allowance affects only credit sales.
• C. A sales return involves the customer physically returning the goods, while a sales allowance is a reduction in the selling price without the goods being returned.
• D. A sales return is recorded only at the end of the accounting period, while a sales allowance is recorded immediately.

Answer: (C)

Verified step by step guidance

1. Understand the concept of a sales return: A sales return occurs when a customer physically returns goods to the seller, typically because the goods are defective, incorrect, or unsatisfactory.
2. Understand the concept of a sales allowance: A sales allowance is a reduction in the selling price granted to the customer, often due to minor defects or issues with the goods, without requiring the customer to return the goods.
3. Compare the impact on financial records: Both sales returns and sales allowances reduce net sales, but they are recorded differently based on whether the goods are returned or not.
4. Clarify the timing of recording: Sales returns and sales allowances are recorded as they occur, not necessarily at the end of the accounting period. This ensures accurate financial reporting.
5. Identify the correct distinction: The key difference is that a sales return involves the physical return of goods, while a sales allowance is a price reduction without the return of goods.