A sales return, as the name implies, is something (a product or service) that is sent back to the seller. Or Direct deduction from gross income for any return of product or service (multifactional) is called sales return.
The scenario will be reversed in case of credit sales, so in a journal entry, the receivable amount will be zero.
A sales return can have multiple reasons for occurrence,
- Excess quantity shipped
- Excess quantity ordered
- Defective Goods
- Goods shipped too late
- Product specifications are incorrect
- Wrong items shipped
If Sales Made on Credit
In case of sale credit, then assert value will automatically decrease
If sales Made on Debit
Company revenue recognition value will automatically decrease
|Sales Returns and Allowances||500.00|
|Accounts Receivable – BLADE||500.00|
For example, a company (HOUSTON Group) received sales return 500, due to a defect in the product, so amount receivable will be 500 exactly. other conditions implement like sales allowance.
|Sales Returns and Allowances||40.00|
The fault or reason for which a sales return was made is either negligence on the buyer’s end or the seller’s end. However, buyer satisfaction after sales is also a possibility.
When a seller receives a sales return, he adjusts his journal accordingly.
The seller adds the return as a debit to a Sales Returns account and a credit to the Accounts Receivable account. The total amount of sales return is subtracted from the net sales at the end of a given period.
Sales Retune Seller perspectiv4e
Sales returns, however, are usually very constrained and sellers have rules according to which the sales return is carried out.
Most sellers do not have an after-sales return policy in case of the buyer not satisfied.
In some cases, the sales return is not authorized until a transaction is completed or a given time frame is not met. In this situation, the seller makes account statements for different periods.
In the earlier period, the profit recognized is overstated whereas in the later statement the profit recognized is understated.
In this way, the total amount of profit is balanced to the actual profit after the sales return has been processed.