What happens to cash when you record a return on a sale?

When a return on a sale is recorded, it typically involves the reversal of the cash transaction associated with that sale. This means that if the original sale resulted in an increase in cash (from the customer paying for a product or service), returning the product leads to a decrease in cash since the business must refund the customer.

In accounting terms, the cash account is debited (decreasing cash) to reflect the outflow of funds due to the refund. As a result, the overall cash balance reduces when the return is processed, aligning with the principle that returns negatively impact the revenue generated from sales. This is why the correct response is that cash decreases as a result of recording a return on a sale.