Sales returns, or returns inwards, are a normal part of business. Goods may be returned to supplier if they carry defects or if they are not according to the specifications of the buyer.
There is need to account for sale returns as though no sale had occurred in the first place.
Hence, the value of goods returned must be deducted from the sale revenue.
Where a sale was initially made on credit, the receivable recognized must be reversed by the amount of sales returned.
The following double entry must be recorded upon sales returns:
|Debit||Sales Return (decrease in income)|
|Credit||Receivable (decrease in asset)|
Bike LTD sells a mountain bike to XYZ for $100 on credit. XYZ later returns the bike to Bike LTD due to a serious defect in the design of the bike.
The initial sale will be recorded as follows:
Upon the return of bike, the following double entry will be passed:
No further entry will be required as the receivable due from XYZ has been reversed.