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If a customer wants to bring back an item, you need to make sales returns and allowances journal entries. The entries in the purchases returns and allowances journal are made using a document known as debit memorandum (often abbreviated as debit memo). In this document, buyer mentions the type, quality, quantity, price and invoice number of the goods being returned to the seller. A copy of the debit memo remains with the buyer and the entry in the purchases returns and allowances journal is made on the basis of it. The debit memo is sometimes also referred to as debit note.

Rather, they are a reduction of sales revenue and are deducted from sales revenue while calculating net sales. Notice the entries for returns and allowances are the same for the buyer. We are not tracking physical quantities of inventory here. In both cases the dollar value of the inventory has changed, so the entry is the same. Generally, it is recorded in the “Sales Return and Allowance Account”. On August 1, a customer purchases 56 tablet computers on credit.

How to Use the General Journal to Enter a Cash Refund on a Credit Card Transaction in QuickBooks

Accounts Payable decreases (debit) for the amount owed, less the return of $1,500 and the allowance of $120 ($8,000 – $1,500 – $120). Since CBS paid on July 15, they made the 15-day window and received a discount of https://turbo-tax.org/what-if-i-owe-money-to-the-irs/ 5%. Purchase Discounts increases (credit) for the amount of the discount ($6,380 × 5%). Since CBS already paid in full for their purchase, a cash refund of the allowance is issued in the amount of $480 (60 × $8).

• Terms of the purchase are 5/15,

  n/40, with an invoice date of July 1.

• As earlier stated, a high level of returns is an indication of the presence of serious problems, however, these problems are correctable.
• CBS determines that the returned merchandise can be resold and returns the merchandise to inventory at its original cost.
• Let’s continue to follow California Business Solutions (CBS) and

  the sale of electronic hardware packages to business customers.

On September 8, the customer discovers that 20 more phones from

the September 1 purchase are slightly damaged. The customer decides

to keep the phones but receives a sales allowance from CBS of $10

per phone. Cash increases (debit) and Sales increases (credit) by the

selling price of the packages, $12,000 ($1,200 × 10). Unlike the

perpetual inventory system, there is no entry for the cost of the

sale. This recognition occurs at the end of the period with an

adjustment to Cost of Goods Sold. CBS purchases 80 units of the 4-in-1 desktop printers at a cost

of $100 each on July 1 on credit.

Classification and Presentation in the Income Statement

Companies incur expenses that are essential in helping generate revenues. Purchases are goods or services obtained or acquired to fund a company’s operations. These differ from other expenses which do not directly contribute to a company’s revenues. Instead, purchases are a part of a company’s part of sales and the direct expense for revenues.

• On September 3, the customer discovers that 40

  of the phones are the wrong color and returns the phones to CBS in

  exchange for a full refund.

• On April 17, CBS makes full payment on the amount due from the

  April 7 purchase.

• A physical inventory count requires companies to do a manual “stock-check” of inventory to make sure what they have recorded on the books matches what they physically have in stock.
• Accounts Payable decreases (debit) for the amount owed, less the

  return of $1,500 and the allowance of $120 ($8,000 – $1,500 –

  $120).

A customer purchases 55 units of the 4-in-1 desktop printers on October 1 on credit. Terms of the sale are 10 ÷ 15, n ÷ 40, with an invoice date of October 1. On October 6, the customer returned 10 of the printers to CBS for a full refund. CBS returns the printers to their inventory at the original cost. The following entries show the sale and subsequent return.

Sales Returns and Allowances Transaction Journal Entries

Therefore, the return increases Sales Returns and Allowances (debit) and decreases Accounts Receivable (credit) by $3,500 (10 × $350). The second entry on October 6 returns the printers back to inventory for CBS because they have determined the merchandise is in sellable condition at its original cost. Merchandise Inventory–Printers increases (debit) and COGS decreases (credit) by $1,000 (10 × $100). Since the customer already paid in full for their purchase, a cash refund of the allowance is issued in the amount of $200 (20 × $10).

Purchases–Tablet Computers increases (debit) in the amount of

$4,020 (67 × $60). Accounts Payable also increases (credit), but

the credit terms are a little different than the earlier example. This

means that CBS has 10 days from the invoice date to pay on their

account to receive a 5% discount on their purchase. A buyer debits Cash in Bank if a purchase return or allowance involves a refund of a payment that the buyer has already made to a seller. Purchase Discounts, Returns and Allowances are contra expense accounts that carry a credit balance, which is contrary to the normal debit balance of regular expense accounts. Sometimes, the supplier does not offer goods in exchange, or the company does not exchange.

Purchase Returns and Allowances Transaction Journal

A reduction to

Accounts Receivable occurs because the customer has yet to pay

their account on October 10. Accounts Receivable increases (debit) and Sales increases

(credit) by $19,250 (55 × $350), the sales price of the printers. Accounts Receivable is used instead of Cash because the customer

purchased on credit.

The entry would have been the same to record a $ 350 allowance. 18 Purchased inventory of $4,600 on account from Roberts Corporation. 14 Paid the amount owed on account from January 4, less return and discount.

Journal Entry under the Perpetual Inventory System

26 Paid amount owed on account from January 18, less discount. Uses bar codes to keep up-to-the-minute records of inventory. I am new to accounting and need to make Chart of Account for an Inventory Management Information System. You have a stationery store and a customer placed an order to buy 4 packs of blue gel pens but mistakenly you delivered 3 packs of blue and 1 pack of black pens.

Note that for a periodic inventory system, the end of the period adjustments require an update to COGS. With a purchase allowance, the company does not return the goods to its supplier. Instead, it keeps the goods and receives an allowance or a price reduction.