On April 5, a customer returns 20 bicycles with a sales price of $250 per bike to Barrio Bikes. Each bike cost Barrio Bikes $100. The customer had yet to pay on their account. The bikes are in sellable condition. Prepare the journal entry or entries to recognize this return if the company uses the perpetual inventory system.
Answer (2)
The journal entries for Barrio Bikes on April 5 to recognize the return of 20 bicycles are to debit Sales Returns and Allowances for $5000 and credit Accounts Receivable for $5000. Additionally, debit Inventory for $2000 and credit Cost of Goods Sold for $2000. This process ensures accurate reporting of sales and inventory adjustments due to the return.
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Calculate the total sales return: 20 × $250 = $5000 .
Calculate the total inventory return: 20 × $100 = $2000 .
Debit Sales Returns and Allowances and credit Accounts Receivable for $5000.
Debit Inventory and credit Cost of Goods Sold for $2000.
The journal entries are:
Date
Account
Debit
Credit
April 5
Sales Returns and Allowances
$5000
Accounts Receivable
$5000
To record sales return.
Date
Account
Debit
Credit
April 5
Inventory
$2000
Cost of Goods Sold
$2000
To record inventory returned.
See table above for journal entries
Explanation
Understanding the Problem On April 5, a customer returns 20 bicycles to Barrio Bikes. The sales price per bicycle is $250, and the cost per bicycle to Barrio Bikes is $100. The customer had not yet paid on their account, and the bicycles are in sellable condition. We need to prepare the journal entries to recognize the sales return and the inventory returned using the perpetual inventory system.
Calculating Total Sales Return First, we calculate the total sales return amount. This is the number of bicycles returned multiplied by the sales price per bicycle: 20 bicycles × $250/ bicycle = $5000 This is the amount by which we need to reduce the accounts receivable and recognize the sales return.
Calculating Total Inventory Return Next, we calculate the total cost of the inventory returned. This is the number of bicycles returned multiplied by the cost per bicycle: 20 bicycles × $100/ bicycle = $2000 This is the amount by which we need to increase the inventory and reduce the cost of goods sold.
Preparing Journal Entries Now, we prepare the journal entries. The first entry is to record the sales return. We debit Sales Returns and Allowances and credit Accounts Receivable for $5000.
Date
Account
Debit
Credit
April 5
Sales Returns and Allowances
$5000
Accounts Receivable
$5000
To record sales return.
The second entry is to record the inventory returned. We debit Inventory and credit Cost of Goods Sold for $2000.
Date
Account
Debit
Credit
April 5
Inventory
$2000
Cost of Goods Sold
$2000
To record inventory returned.
Conclusion The journal entries to recognize the sales return and inventory returned are now complete.
Examples
Understanding how to account for sales returns is crucial in business. For example, if a clothing store sells 100 shirts at $30 each but 10 are returned due to defects, the store needs to reduce its sales revenue and increase its inventory. The sales return is 10 shirts * $30/shirt = $300. This adjustment ensures the financial statements accurately reflect the company's financial performance and position. Proper accounting for returns helps in making informed business decisions, such as improving product quality or adjusting sales strategies.
