Question

Lee Ltd delivers the goods to customers and gives the customers the right to return the product with no reason within 14 days after delivery. 1st May 20X9, goods were sold and delivered to a customer. The price charged was equal to the cost of $200 plus a 20% profit margin. According to the historical data, a significant amount of goods were returned within 14 days after delivery. Please ignore the GST. Required: (Please label your responses as 1), 2).) 1) Entries on 1st May 20X9 (2/4) 2) Entries on 14th May 20X9 if goods were not returned within 14 days after delivery (2/4)

Answer 1

According to historical data a significant amount of good were returned within 14 days after delivery, the amount of sales return is large enough .

Management should pay attention to know the reason of sales return and make all possible efforts to reduce it.

Most of the common reason of sales return is

• Product didn't meet customer's expectation
• Customer found better product price elsewhere.
• Bad quality of product.

Company can reduce sales return by providing after sale service and encourage customer review, more customer reviews drive higher sales and lower sales return.

(1)

Cost of goods sold = $200

Profit = 20% of $200 = $ 40

Sales value = $200+$40 = $240

Goods were sold on 14th May 2019

JOURNAL ENTRY

Date. Particular Amount(dr) Amount (cr)

2019

01May. A/c receivable. $240.

To sales. $240

(2)

In this case goods were not returned within 14 days after delivery

As on 14th May 2019 there are no any transaction, goods were sold on 1st May 2019

So there will be no any entry on the date of 14th May 2019.