Accounting for IGCSE & O level - Accounting Procedures (Section 6 - No. 2)

What is the effect of a refund being made to a trade customer?

Increase trade receivable and decrease cash.

Increase trade receivable and increase cash.

Decrease trade receivable and decrease cash.

Decrease trade receivable and increase cash.

A refund involves cash going out, so cash decreases, and trade receivables have to be reduced as the customer is owed money.