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Chapter 5: Q5-15RQ (page 294)

Under the new revenue recognition standard, what most companies do at the end of the period related to sales returns? Describe the journal entries that would be recorded.

Short Answer

Expert verified

As per the newrevenue recognition standard, the companies must compute the net amount at the end of the period related to sales returns and estimate therefunds payable balances.

Step by step solution

01

Meaning of Sales Returns

In accounting, sales returns refer to thegoods returned by the buyer to the seller due to any damages, defects, or any other issue. Such returns decrease thesales revenues of thebusiness concern.

02

Companies’ responsibility at the end of the period

At the end of the accounting period, companies must compute thenet amount after the settlement of all the applicable discounts.

In addition, as per the new revenue recognition standard,refunds payable are required to be estimated and recorded.

03

Journal entries required

Date

Accounts and Explanation

Debit ($)

Credit ($)

Sales revenue

XXX

Refunds payable

XXX

(To record the refunds payable)

Estimated returned inventory

XXX

Cost of goods sold

XXX

(To record the cost of goods sold)

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Most popular questions from this chapter

The adjusted trial balance of Quality Office Systems at March 31, 2018, follows:

Crazy Cookies earned net sales revenue of \(66,000,000 in 2018. The cost of goods sold was \)39,600,000, and net income reached $7,000,000, the company’s highest ever. Compute the company’s gross profit percentage for 2018.

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Journalize the following sales transactions for Sierra Tractors. Explanations are not required.

June 5 Sierra sold \(20,000 of inventory on account, credit terms are 4/10, n/30. Cost of goods is \)10,000. Sierra uses the gross method to record sales revenue.

12 Sierra receives payment from the customer on the amount due, less the discount.

Journalize the following transactions that occurred in June 2018 for Daley Company. Assume Daley uses the periodic inventory system. No explanations are needed. Identify each accounts payable and accounts receivable with the vendor or customer name. Daley estimates sales returns at the end of each month.

Jun. 3 Purchased merchandise inventory on account from Sherry Wholesalers, \(5,500. Terms 3/15, n/EOM, FOB shipping point.

4 Paid freight bill of \)42 on June 3 purchase.

4 Purchased merchandise inventory for cash of \(1,100.

6 Returned \)200 of inventory from June 3 purchase.

8 Sold merchandise inventory to Henrich Company, \(4,400, on account. Terms 2/15, n/35.

9 Purchased merchandise inventory on account from Tex Wholesalers, \)4,600. Terms 1/10, n/30, FOB destination.

10 Made payment to Sherry Wholesalers for goods purchased on June 3, less return and discount.

12 Received payment from Henrich Company, less discount.

13 After negotiations, received a \(300 allowance from Tex Wholesalers.

15 Sold merchandise inventory to Jarvis Company, \)1,500, on account. Terms n/EOM.

22 Made payment, less allowance, to Tex Wholesalers for goods purchased on June 9.

23 Jarvis Company returned \(100 of the merchandise sold on June 15.

25 Sold merchandise inventory to Smith for \)700 on account. Terms of 3/10, n/30 was offered, FOB shipping point.

29 Received payment from Smith, less discount.

30 Received payment from Jarvis Company, less return.
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