Where would you record an increase in sales returns and allowances?

An increase in sales returns and allowances is recorded as a debit to the income account. This is because sales returns and allowances reduce the total revenue recognized by a business. When customers return products or when allowances are granted due to issues with the products (like defects or dissatisfaction), it signifies a reduction in the income that was previously recorded from sales.

By debiting the income account, you effectively lower the overall revenue on the financial statements, maintaining an accurate representation of the business's financial position. This is crucial for understanding the true performance of the business, as sales returns and allowances directly impact net income by decreasing the revenue figure.

Other options do not accurately reflect how sales returns and allowances are handled in accounting. For instance, crediting income would artificially inflate the earnings and misrepresent the financial situation, while the treatment of assets and liabilities in this context does not apply since returns do not constitute an increase in assets or liabilities.