After a sale, a customer returns 10 items that sold for $15 each and h…

Question

After a sale, a customer returns 10 items that sold for $15 each and had cost $10 each, under the perpetual system with returns previously estimated. Which TWO entries record the actual return?

Accepted Answer

B. Debit Allowance for Sales Returns $150 / credit Accounts Receivable $150; debit Merchandise Inventory $100 / credit Estimated Inventory Returns $100

1. Sales value returned = 10 x $15 = $150; cost of those goods = 10 x $10 = $100.
2. Because the return was pre-estimated, debit Allowance for Sales Returns $150 (reducing the estimate) and credit Accounts Receivable $150.
3. The goods physically come back, so debit Merchandise Inventory $100 and credit Estimated Inventory Returns $100 (the asset set up for expected returns).
4. Option B/D wrongly hit Sales Returns again or push cost into Cost of Sales; option C reverses the receivable side.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §3.3 "Basic Merchandising Transactions (Perpetual Inventory System)", p.96_

Answer

Debit Sales Returns $150 / credit Accounts Receivable $150; debit Cost of Sales $100 / credit Merchandise Inventory $100

Answer

Debit Accounts Receivable $150 / credit Allowance for Sales Returns $150; debit Estimated Inventory Returns $100 / credit Merchandise Inventory $100

Answer

Debit Allowance for Sales Returns $150 / credit Accounts Receivable $150; debit Cost of Sales $100 / credit Merchandise Inventory $100