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A debit to Sales Returns and Allowances and a credit to Accounts Receivable: Multiple Choice Ο. Is recorded when a customer t
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Option "3" is correct that says, "Recognizes that a customer returned merchandise and/or received an allowance.

When merchandise is returned, sales return and allowances account are debited to reduce sales and account receivable or cash are credited to refund/reduce cash that is owed by the customer. If a customer wants a cash refund, we can just credit cash, rather than account receivable while the debit entry will be the same. Sales return and allowances are called contra revenue account.

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