Point 13 Sales Returns & Allowances, Discounts Sometimes the merchandise is damaged; the merchandise is not what the buyer wanted. At this time, the buyer will return the goods, or request a price reduction. So the seller will record this.

The seller will do these two entries: Dr. Sales returns and Allowances Cr. Accounts Receivable Dr. Merchandise Inventory Cr. Cost of Goods Sold

● For example ,On May 9, goods with a selling price of $300 and a cost of $140 are returned and restored to inventory. Sales Returns

Sales allowances When seller grants customers a price reduction, the seller should do this entry: The second entry is not required since the goods have not been returned.

Discounts The discount rates are the same as previous. (2/10, Quantity discount Sale is recorded at reduced price No separate entry is made to record a quantity discount, too. Sales discount The discount rates are the same as previous. (2/10, 1/20,n/30)

Entry is made when payment is received. Dr. Cash Dr. Sales discounts ③ Cr. Accounts Receivable

● In last Illustration, On May 14, Highpoint Electronic receives the correct payment from Chelsea Video. Terms 2/10, n/30. If the discount is not taken, Highpoint Electronic do the entry by $3,500 at the date of collection.

Illustration Record the transaction on the books of Junot Company: On September 4, Junot Company sells merchandise for $1,500 on account to New Idea Company, terms 2/10, n/30, FOB shipping point. The original cost of the merchandise to Junot Company was $800. The correct company pays freight charges of $75 on September 5. Dr. Accounts Receivable 1500 Cr. Sales 1500 Dr. Cost of Goods Sold 800 Cr. Merchandise Inventory 800

On September 8, goods with a selling price of $200 and a cost of $80 are returned and restored to inventory. On September 14, Junot Company receives the correct payment from New Idea Company. Dr. Sales Returns and Allowances 200 Cr. Accounts Receivable 200 Dr. Merchandise Inventory 80 Cr. Cost of Goods Sold 80 Dr. Cash ($1300 − $26) 1274 Dr. Sales Discounts ($1300 × 2%) 26 Cr. Accounts Receivable ($1500 − $200) 1300

Summary of Sales Transactions 1. Sale of goods Dr. Cash or A/R Cr. Sales Dr. Cost of Goods Sold Cr. Merchandise Inventory 2. Freight on sales (destination) Dr. Freight Out Cr. Cash or A/P 3. Sales taxes Cr. GST Payable 4. Return of sold goods Dr. Sales Returns and Allowances Cr. Cash or A/R Dr. Merchandise Inventory Cr. Cost of Goods Sold 5. Cash received on account with a discount Dr. Cash Dr. Sales Discounts Cr. Accounts Receivable Sales PERPETUAL