The journal entry is debiting sale, VAT payable and credit cash. It has to reverse the sale from the income statement and remove the VAT payable from the balance sheet. When the company has collected cash from the customers, it will require to refund the cash back to customers. Account Debit Credit Inventory $$$ Cost of Goods Sold $$$ Sale Return of Cash Sale The journal entry is debiting inventory and credit cost of goods sold. The company needs to recognize the inventory as well when customers return the physical goods. Account Debit Credit Sale $$$ VAT Payable $$$ Accounts Receivable $$$ The journal entry is debiting sale, VAT payable, and credit Accounts Receivable. When the company sells goods on credit, it will record accounts receivable, so it needs to reverse accounts receivable when customers return goods. Second, it is the return of goods that the customers already paid for. First, it is the return of goods when the customer has not yet made a payment which is the credit sale. There are two scenarios that can happen to the sale return. it is recorded as payable which the company has obligation to pay to the tax authority. It is the amount that company marks up based on the tax law. If the sale included VAT, the company needs to reverse the VAT payable as well. The company needs to reverse the accounts receivable or refund customers. It will add back the inventory to the company’s balance sheet. It will reduce the company’s revenue and cost of goods sold from the income statement. Sale returns will impact the seller’s financial statements. At the same time, the company must eliminate the VAT payable which record during the sale. If it is a credit purchase, the company needs to write off the accounts receivable. If the customers have already made the payment, the company needs to refund back. The cost of goods sold is also reversed back from income statement. The sale returns will require the company to record the inventory back to balance sheet as the customer return the physical product. ![]() After all, a sale is only successful when both parties are satisfied with the outcome. It is also important for businesses to market their return policy in a way that does not deter potential customers from making a purchase. An ideal return policy strikes a balance between these two objectives. At the same time, the policy should also allow the business to recover its losses incurred due to returns. For instance, it should be easy for the customer to return the product and receive a refund or exchange it for another product. Having a clear and concise policy in place will help to ensure that both businesses and customers are happy with the outcome of any sale or return of goods.Ī good return policy should be designed to benefit both the customer and the business. This policy should outline how customers can return goods, what documentation is required, and how refunds will be processed. ![]() Regardless of the reason, all businesses should have a clear policy in place for dealing with sale return of goods. The reasons for customers returning goods are various, ranging from simply not liking the product to it being faulty or different from described. However, there are still instances when customers need to return the goods they have purchased.Ī sale return of goods refers to a situation where a customer has completed the purchase of goods and, for whatever reason, decides to return the goods back to the seller and ask for a refund. In the modern world, the sale of goods has become easier due to the presence of various channels such as online stores and physical stores. The purchase of goods is an essential economic activity in any business. Sales return is the transaction in which customers demand to return the goods and refund due to various reasons.
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