Wize University Introduction to Financial Accounting Textbook > Merchandising
Sales Returns and Allowances
Popular Courses
COMM 217
Concordia University
ACCT 2301
The University of Texas at Dallas
Intro to Financial Accounting
General Course
COMM 293
University of British Columbia
Intro to Financial Accounting
University Study Guides
MGCR 211
McGill University
ACCT 1220
University of Guelph
Intro to Financial Accounting
University Study Guides
ACCT 217
University of Calgary
ADMS 2500
York University
ACC 100
Toronto Metropolitan University
COMM 111
Queen's University
ADM 1340
University of Ottawa
BU127
Wilfrid Laurier University
COMM 1101
Dalhousie University
AFM 101
University of Waterloo
BUS 251
Simon Fraser University
ACCT 2301
Houston
ACCT 2301
Houston
AFA 100
Toronto Metropolitan University
0:00 / 0:00
Sales Returns and Allowances
When a is not satisfied with a product, they may choose to return it to the seller or to request a rebate on the price paid. The accounting for these scenarios requires the use of the account called Sales Returns and Allowances.
Recording Sales Returns
- Returns and rebates are entered into the contra-revenue account titled Sales Returns and Allowances
- Does not reduce Sales revenue
- If the customer has already paid, arefundis given.
- Cash is returned to the customer
- If the customer was given a discount when they paid, the refund must be discounted as well.
- If the customer had not yet paid, acreditis given.
- Accounts receivable is reduced
- Under perpetual inventory only
- Return inventory to company's inventory account (debit) and cancel cost of goods sold (credit) only if inventory can be sold again.
0:00 / 0:00
Example: Sales Returns and Allowances
XYZ Corp. sold 50 units to Customer X on account at a price of $80 per unit on May 14. The inventory was valued at $30 per unit in the company's books. The terms of the sale were 3/15, n/60. Prepare the journal entries on May 20th and May 31st.
On May 20th, Customer X returned 10 units that did not meet the company's specifications.
To record the credit to the customer for the return
To record the return of inventory to the company's books
On May 24th, Customer X paid for her remaining balance.
On May 31st, Customer X returned 5 defective units.
Practice: Sales Returns and Allowances
Wize Merchandisers Inc. has just hired you to be their new bookkeeper and your first task is to prepare journal entries to record the transactions on April 7th and April 21st. The company uses the perpetual inventory system.
Apr. 1: Sold merchandise to a Twilight Ltd. for $2,000 on account. The cost of the merchandise was $750. The terms of the sale are 1/10, n/30 and FOB destination. The merchandise was shipped the following day at a cost of $60 and was delivered on April 5th.
Apr. 7: Twilight Ltd. returned 25% of the goods purchased on April 1st.
Apr. 8: Sold 90 units of merchandise for $25 per unit to Omega Corp. The merchandise had cost Wize $10 per unit. The terms of the sale are 2/15, n/45, FOB shipping point. The goods were shipped on April 10th at a cost of $140.
Apr. 9: Twilight Ltd. paid their balance in full.
Apr. 14: Omega Corp. paid $2,000 for a purchase made in March.
Apr. 15: Omega Corp. paid $500 towards their balance owing from the purchase made April 8th.
Apr. 21: Twilight Ltd. returned 10% of the goods purchased on April 1st.
Apr 29: Omega Corp. paid their remaining balance.
Prepare the journal entry to record the transaction on April 7th.
Transactions:
| Account | Debit | Credit |
|---|---|---|