College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756



College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756
Textbook Problem

When $25 of merchandise is returned for a credit on account, what is the amount of the credit to Accounts Receivable, assuming a 6% sales tax rate?

  1. (a) $1.50
  2. (b) $25.00
  3. (c) $26.50
  4. (d) $31.00

To determine

Find the correct option, the option that indicates the correct amount of credit to Accounts Receivable.


Sale: Sale is an exchange transaction of merchandise wherein the seller transfers the ownership of asset or goods to buyer, for money.

Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Debit and credit rules:

  • Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.
  • Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.

Prepare journal entry to record the credit sale return transaction.

DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
Sales Returns and Allowances25.00
Sales Tax Payable1.50
Accounts Receivable26.50
(Record merchandise returned)

Table (1)


  • Sales Returns and Allowances is a contra-revenue account, and contra-revenue accounts decrease the equity value, and a decrease in equity is debited...

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