Chapter 5: Q5SE (page 296)

On December 31, Jack Photography Supplies estimated that approximately 2% of merchandise sold will be returned. Sales Revenue for the year was $80,000 with a cost of $48,000. Journalize the adjusting entries needed to account for the estimated returns.

Short Answer

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Answer

The total of debits and credits is$2,560.

Step by step solution

Meaning of Sales Returns

In accounting, the term sales returns denote thegoods returned by the customersto the business entity due todamages or defects.Sales returns are reported differently under periodic and perpetual inventory systems.

Preparation of adjusting journal entries

Date	Accounts and Explanation	Debit ($)	Credit ($)
Dec 31	Sales revenue (80,000*2%)	1,600
	Refunds payable		1,600
	(To record the estimated returns)
Dec 31	Estimated returns inventory
	Cost of goods sold (48,000*2%)	960
	(To record the cost of goods sold)		960

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1. Cost of Goods Sold	a. An inventory system that requires businesses to obtain a physical count of inventory to determine quantities on hand.
2. Perpetual inventory system	b. Expenses, other than the Cost of Goods Sold, that are incurred in the entity’s major ongoing operations.
3. Vendor	c. Excess of Net Sales Revenue over Cost of Goods Sold.
4. Periodic inventory system	d. The cost of merchandise inventory that the business has sold to customers.
5. Operating expenses	e. The individual or business from whom a company purchases goods.
6. Gross profit	f. An inventory system that keeps a running computerized record of merchandise inventory.

On December 31, Jack Photography Supplies estimated that approximately 2% of merchandise sold will be returned. Sales Revenue for the year was \(80,000 with a cost of \)48,000. Journalize the adjusting entries needed to account for the estimated returns.

Short Answer

Step by step solution

Meaning of Sales Returns

Preparation of adjusting journal entries

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