Question

After the amount due on a sale of $85,750, terms 3/10, n/eom, is received from a customer within the discount period, the seller consents to the return of the entire shipment. The cost of the merchandise returned was $47,163.

b. Illustrate the effects on the accounts and financial statements of the return and the refund. If no account or activity is affected, select "No effect" from the dropdown and leave the corresponding number entry box blank. Enter account decreases, net cash outflows, and all negative effects on net income as negative amounts.

Statement of Cash Flows Balance Sheet Income Statement Assets = Liabilities + Stockholders' Equity + + = + Statement of Cash Flows Income Statement

Answer 1

Statement of Cash Flows	Balance Sheet										Income Statement
	Assets					=	Liabilities	+	Stockholders' Equity
	Cash	+	Inventory	+		=		+	Retained earnings
	(83,177.50)		47,163.00						(36,014.50)
Statement of Cash Flows										Income Statement
Operating activity	(83,177.50)									Sales Returns & Allowances	(85,750.00)
										Sales Discount	2,572.50
										Cost of Goods Sold	47,163.00
										Total effect on net income	(36,014.50)

Date	General Entry	Debit	Credit
On the date of Sale	Accounts Receivable	85,750.00
	Cost of Goods Sold	47,163.00
	Sales		85,750.00
	Inventory		47,163.00
	(To record sales revenue on account and cost of goods sold.)
on the date of payment	Sales Discount (85750*3%)	2,572.50
	Cash	83,177.50
	Accounts Receivable		85,750.00
Now you just need to reverse all above account.
on the date of Returned and Refund	Sales Returns & Allowances (Part of Income statement)	85,750.00
	Sales Discount (85750*3%) (Part of Income statement)		2,572.50
	Cash		83,177.50
	(To record returned and refund of customer's payment.)
on the date of Returned and Refund	Inventory	47,163.00
	Cost of Goods Sold (Part of Income statement)		47,163.00
	(To record return the returned shipment to inventory.)