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How does Rich Inc record this allowance

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Question - Cody and Rio run a successful business that sells premium bird cages to retail stores. One client, Rich Inc., calls Cody and exclaims that a bird cage they purchased last week was the wrong colour. Rich Inc. says they will return the bird cage unless Cody offers them a 20% allowance on the cage. Cody agrees to the allowance. How does Rich Inc. record this allowance? Assume a perpetual inventory system.

a. It should decrease a liability and decrease an asset

b. It should decrease a liability and increase an asset

c. It should increase a liability and decrease an asset

d. It should increase a liability and increase an asset

Reference no: EM132480503

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