Question

Generally accepted accounting principles require that revenue be reported net of sales returns and allowances:

A) if practical.
B) if required by industry practice.
C) if the amounts are material.
D) any of the above.

Answer 1

Generally accepted accounting principles require that revenue be reported net of sales returns and allowances if the amounts are material.The correct option is C.

Step-by-step explanation:

The generally accepted accounting principles require that revenue be reported net of sales returns and allowances if the amounts are material. This means that if the sales returns and allowances have a significant impact on the overall revenue of the company, they need to be deducted from the reported revenue.

For example, let's say a company made $1,000,000 in revenue, but had $100,000 in returns and allowances. The revenue reported would be $900,000 ($1,000,000 - $100,000) net of sales returns and allowances.

This requirement is important because it provides a more accurate representation of the company's financial performance and helps users of the financial statements make informed decisions.