Recording Sales Returns for Customer Refunds

Steps:

• Identify transaction as customer (Rashid) returning goods bought on credit, reducing seller's revenue.
• Debit Sales Returns account to record the return and contra revenue.
• Credit Accounts Receivable (Rashid) to reduce the customer's balance.
• Format entry with debit first: Sales Returns, then credit to Rashid.

Why C is correct:

• Sales returns are debited in the seller's books to reverse revenue from returned goods, per accrual accounting principles.

Why the others are wrong:

• A: Purchase returns apply to buyer's returns to suppliers, not seller's customer returns.
• B: Debits Rashid (Accounts Receivable) incorrectly; it should be credited in sales returns.
• D: Credits Sales Returns wrongly; it must be debited to reduce net sales.

Final answer: C