Week 4 Electronic Reserve Readings - Learning Activity - Week4 - ACC/290 - eCampus

• • It is common to have sales returns. Therefore, a contra account to sales, called Sales Returns and Allowances, is often used to record credit for the returned goods. Two entries are required when this account is used. The first is to increase (debit) the Sales Returns and Allowances account and decrease (credit) cash or accounts receivable. The second entry is to increase Merchandise Inventory and decrease Cost of Goods Sold. Why is it important to record the returns in a separate account rather than just decreasing the Sales Revenue account?