Credit and Sales Returns

Sales returns are inclusive of refunds, credits, or special price reductions known as allowances. Therefore, it is important to accrue returns and allowances at the time of sale, avoiding overstating the income statement. 

Accounting will be FOR CREDIT SALES:

• Debit Account Receivables
• Credit Sales Revenue
• Debit COGS
• Credit Inventory

 
Accounting for returns, you will FOR CREDIT SALES:

• Debit Sales Revenue
• Credit Accounts Receivables
• Debit Inventory
• Credit COGS

 
Accounting for “Expecting” returns, you will FOR CREDIT SALES:

• Debit Sales Return
• Credit “Allowance” for Sales Return
• Debit Inventory for Estimated Returns
• Credit COGS

 
If the “expecting” does actualize to a sales return, you will FOR CREDIT SALES:

• Debit “Allowance” for Sales Return
• Credit Accounts Receivables
• Debit Inventory
• Credit Inventory for Estimated Returns

 
And the accounting for Correcting “Estimate of Sales Returns” for lower returns:

• Debit Allowance for Sales Returns
• Credit Sales Returns
• Debit COGS
• Credit Inventory for Estimated Return