What is the effect of Sales Returns on total sales revenue?

• A. Reduces total sales revenue.
• B. Increases total sales revenue.
• C. Has no effect.
• D. Increases cost of goods sold.

Answer: (A)

Sales returns reduce the amount of revenue the business earns from its sales. When customers return goods, the sale is effectively unwound, so net sales drop by the value of the returned items. Net sales = gross sales minus sales returns and allowances, which makes returns a contra-revenue item.

For example, if gross sales are 100,000 and returns total 5,000, net sales are 95,000. So the effect on total sales revenue is a reduction.

The other options don’t fit because returns don’t increase revenue, they do not leave revenue unchanged, and they relate to revenue, not the cost side (COGS).