Jenny’s Bakery recently delivered a bad batch of cakes to a local restaurant. Jenny quickly refunded the cost of the cakes to the restaurant. Her accountant made a __________ to her Refunds of Sales account for this transaction:
Explanation
Answer - B - Her accountant made a debit to her refund account for this transaction. A decrease to revenue, such as a refund, is done by a debit entry, while an increase to revenue is done through a credit entry.
Key Takeaway: Revenue accounts are decreased with debit entries and increased with credit entries. A refund will decrease revenue, so a debit entry is made. Refunds can be tracked by either debiting the actual revenue account or a debit through a contra-revenue account, in this case, simply called Refunds of Sales. Since the bakery is giving cash back to the restaurant, the cash account will be decreased with a corresponding credit.
