Sales Returns and Allowances

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

Use the Ethical Decision Framework in Exhibit 1-9 to complete the following requirements:

1. Recognize an ethical dilemma: What ethical dilemma(s) do you face?

2. Analyze the key elements in the situation:

a. Who may benefit if you follow the sales manager's recommendation? Who may be harmed?

b. How are they likely to benefit or be harmed?

c. What rights or claims may be violated?

d. What specific interests are in conflict?

e. What are your responsibilities and obligations?

3. List alternatives and evaluate the impact of each on those affected: As controller, what are your options in dealing with the ethical dilemma(s) you identified in (1) above? If sales are recorded as the sales manager recommends, will users have all the relevant information needed to make decisions? Why or why not?

4. Select the best alternative: Among the alternatives, which one would you select?