Question

Sales Returns Adjusting Entry

Estimated additional customer returns expected to be 0.5% of year end net sales revenue. Cost of additional expected returned inventory is estimated to be 195$. 80% of additional expected returns are estimated to come from sales on account. 20% of additional expected returns are estimated to come from cash sales.

Net Sales = 61152

Answer 1

Solution:

Total Estimated Sales Return and Allowance = Net Sales x 0.5% = $61,152*0.5% = $306

Out of $306, 80% sales return and allowance are expected from Accounts Receivable i.e. Sales on Account.

Estimated Sales Return and Allowance from Sales on Account = 80%*$306 = $245

Estimated Sales Return and Allowance from Cash Sales = 20%*$306 = $61

Following adjustment entry is passed:

Date	General Journal	Debit	Credit
Entry (a)	Sales return and allowance	$306
	Accounts Receivable		$245
	Cash Sales or Cash		$61
	(To record expected sales return and allowance)
Entry (b)	Inventory	$195
	Cost of Goods Sold		$195
	(To record related cost of expected sales return)

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