Question

Howell Company granted a sales allowance of $360 to a customer who was not totally satisfied with the quality of goods received the customer did not return the goods and had not yet paid for them. Which of the following reflects the effects of this event on the financial statements? Asset Liab. Rev. Exp. Net Inc. Stk. Equity (360) Stat of Cash Flows (360) DA NA NA (360) NA (360) 360 360 (360) NA (360) NA (360) 360 (360) 360 NA (360) NA NA NA NA (360) 366 D. (360) 360 NA Multiple Choice Option A

Answer 1

Answer: Option C

Explanation:

Entry for Sales allowance;

Account title and Explanation	Debit	Credit
Sales returns and allowance	$360
Accounts receivable		$360
[To record sales allowance]

In Balance Sheet:

Accounts receivable-Assets: Decreased

Stockholders' Equity: Decreased

In Income Statement:

Revenues: Decreased, So automatically Net income also Decreased.

Thus,

	Balance Sheet					Income Statement
	Assets	=	Liab.	+	Stk. Equity	Rev.	-	Exp.	=	Net Inc.	Stnt of Cash Flows
C.	($360)	=	N/A	+	($360)	($360)	-	N/A	=	($360)	N/A