Sometimes, instead of returning merchandisethe customer demands a reduction, (a salesallowance)inthe sellingpriceSales allowance - reduction of the originalg price, which is thesellingpreviouslyprice欢agreed upon by bothpartiesTheseare purchase allowances fromthecustomer's perspective
Sometimes, instead of returning merchandise, the customer demands a reduction, (a sales allowance) in the selling price. Sales allowance - reduction of the original selling price, which is the price previously agreed upon by both parties – These are purchase allowances from the customer’s perspective
Usually, a contra account called SalesReturns and Allowances is used toaccumulate both sales returns and salesallowances- By using a contra account, the amount of grosssales is readily available, which allowsmanagers to monitor thelevel of returns andallowancesforvariousreasons- Using the contra account avoids changing theoriginal sales entry for the amounts returned
Usually, a contra account called Sales Returns and Allowances is used to accumulate both sales returns and sales allowances. – By using a contra account, the amount of gross sales is readily available, which allows managers to monitor the level of returns and allowances for various reasons. – Using the contra account avoids changing the original sales entry for the amounts returned
Journal entries for returns and allowances:To record the sale900,000Accountsreceivable900,000Sales revenueTo record the returns and allowances:80,000Salesreturns andallowances80,000Accountsreceivable
Journal entries for returns and allowances: To record the sale: Accounts receivable 900,000 Sales revenue 900,000 To record the returns and allowances: Sales returns and allowances 80,000 Accounts receivable 80,000
Gross sales - total sales revenue before deductingsales returns and allowances, if anyNet sales - total sales revenue reduced by salesreturns and allowancesIncomestatementpresentation$900,000Gross sales80.000Less: Salesreturns andallowancesNetsales$820,000
Gross sales - total sales revenue before deducting sales returns and allowances, if any Net sales - total sales revenue reduced by sales returns and allowances Income statement presentation: Gross sales $900,000 Less: Sales returns and allowances 80,000 Net sales $820,000 ====================
Discounts on sales also affect the amountreported as salesTwo majortypes of discounts:-Tradediscounts-Cashdiscounts
Discounts on sales also affect the amount reported as sales. Two major types of discounts: – Trade discounts – Cash discounts