![]() On Feb 2, the journal entry to adjust inventory and record cost of goods sold account.Īs per the example above, the customer returns the goods that were sold to them on 5 Feb. The other account that will be affected the same amount as finished goods is the cost of goods sold.Ģ. The goods will deliver to the customer, and the inventories will reduce.įinish goods will reduce specifically. Once sales are made, not only sale revenue and account receivable are affected by this transaction. Since this is the credit sales, the company needs to account for the account receivable by debit in the amount of USD875 and credit to sale account USD500 and USD375 and giving the total of USD875. On Feb 2, the journal entry was to record the sales account and the account receivable account as follows:ĭr Account Receivable (ABC cosmetics) = $875 Related article What Are the Advantages of Financial Accounting? (Top 12 Advantages You Should Know) Solution:ġ. Show the general entries to record sales and sales return in the books of ABC cosmetics. The ABC cosmetics purchase product Y at $40 per piece and product Z at $20. On 5th Feb 2020, the customer returned 5 pieces of product Y and 6 pieces of product Z to ABC cosmetics. On 2nd Feb 2020, the firm recorded credit sales of 10 pieces for product Y and 15 pieces for product Z to one of its old customers for $50 and $25 each respectively. So once this entry is posted, inventory will be increased, and the cost of goods sold will be derecognized.ĪBC cosmetics, A cosmetic distributor, deals in two products, Product Y and Product Z. Description Dr Cr Inventory / Stock XXX Cost of Goods Sold XXX Here is the entry to recognize inventory and derecognition of the cost of goods sold. So when the company’s warehouse physically receives the goods, the inventory account will be debited to increase the asset, and the cost of goods sold will be credited. These inventory/goods need to be stored and recorded in the warehouse. Now we have to deal with inventory/goods that customers just returned. ![]() Either cash sale or credit, we need to reduce cash or account receivable accounts and reduce the revenues. If the sales were cash sales, we should credit them to the cash or bank account since the company will need to pay back to the customer. If it were the credit sales, then we should credit to the account receivable account. ![]() It depends on whether the sale of those goods that were returned were cash sales or credit sales. The other entry is the cash or account receivable. Related article Accounting for Warranty - Definition, Types, Journal Entry, And More This sales return allowance account is the contra account to the sales revenue account. ![]() As we can see from the journal entries above, the seller should debit the exact amount of return to the revenue account or the sales return allowance account once the sale is returned. Here is the sale return journal entry: Description Dr Cr Sales Return Allowance / Revenue Account XXX Cr – Cash/Accounts Receivable XXX Account receivable or cash and cash equivalents should also affect whether it is the cash sale or credit sales.įor the seller, revenue can be revised by debiting the sales return account (A contra account by nature) and crediting cash/accounts receivable with the invoice amount. What if the good returns as cash sales? How do we account for it? Journal Entries for Sales Return:Īccounting for sales return is mainly concerned with revising revenue and cost of goods sold previously recorded. Should the account receivable balance decrease or increase? Should revenue decrease or remain the same? In other words, the account payable in the buyers’ book is reduced.īut, how should this transaction be recorded and recognized in the seller’s book? Once the buyer identifies these problems, the buyer will normally need to return the goods and then ask for returning cash or reducing the credit balance. Products are not according to the specifications.Goods are shipped too late to the customer.Goods are not according to the customer’s needs.There may be countless reasons for sales return, but some of the common reasons are: This sales return is accounted for differently from the seller and buyer’s perspectives. Sales return is the return of products or commodities by customers to the seller due to many reasons, but usually within some agreed time period and due to the condition of the product and customer satisfaction.
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