Tuesday, 26 November 2013

Accounting Entries for Sales Returns and Allowances

Each sale is always accompanied by the possibility of returning items (return). And firms are now very aware that things like this can not be avoided. And it is not possible to force the customer to receive the goods defective (defect) or not in accordance with the specifications of the order (wrong specification).
There are some companies anticipate the return of sales (Sales Return) is to establish the account "Provision and Allowance for Sales Return (Sales Return Reserves)". The amount of reserves is usually determined by multiplying a certain percentage of the sales, while the percentage of companies are determined based on experience in previous periods.

The journal candangan formation is as follows:
[Debit]. Sales Return and Allowance
[Credit]. Provision for Sales Return & Allowance
Note:
* Sales Return & Allowance will of course go into Income Statement as a reduction of Sales.
* Provision for Sales Return & Allowance is a real account, and will go to the Balance Sheet, in group 'Liability (Liability) ", ( not assets) .
Later, if the return is really the case, then this reserve account would be wiped out by clicking the Accounts Receivable account credit, his journal:
[Debit]. Provision for Sales Return & Allowance
[Credit]. Accounts Receivable
Note: To date, I have yet to explore more about the tax treatment for the formation of these reserves (including loss reserve accounts). Especially with regard to sales return reserves, it became the company overreacted to acknowledge the existence of sales returns, while returns have not actually happen. If by chance there is to know about the tax treatment of sales returns reserves and loss reserve accounts, request that can be shared here .
Most companies that I've handled, perform recognition of sales returns only when the return is really happening . This is done because the company deem this backup method returns too difficult to implement.
Example:
Of 5 units of computers that were sold by PT. Royal Bali Shining on the 20th June 2008, on the 25th of June Goods returned the unit because at the time of PT. Subur Makmur tried to operate it, was known to the goods does not work. The above returns are recorded with the journal:
[Debit]. Sales Return = Rp 5,400,000
[Debit]. Output VAT = Rp 540,000
[Credit]. Accounts Receivable = Rp 5,950,000

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