Sales Returns and Allowances
Response to the following problem:
You are the controller for a large chain of discount merchandise stores. You receive a memo from the sales manager for the midwestern region. He raises an issue regarding the proper treatment of sales returns. The manager urges you to discontinue the "silly practice" of recording Sales Returns and Allowances each time a customer returns a product. In the manager's mind, this is a waste of time and unduly complicates the financial statements. The manager recommends, "Things could be kept a lot simpler by just reducing Sales Revenue when a product is returned."
Required:
1. What might the sales manager's motivation have been for writing the memo? Might he believe that the present practice is a waste of time that unduly complicates the financial statements? Explain.
2. Do you agree with the sales manager's recommendation? Explain why you agree or disagree.
3. Write a brief memo to the sales manager outlining your position on this matter.