A sales return account is a helpful tool for businesses to keep track of returns and allowances. It can help identify the reason for a high return rate and identify problematic products. For example, a large number of returns may indicate a product defect or a failure to meet customer expectations. By analyzing your sales return account, you can make changes to your business practices to decrease your return rate.
A sales return receipt is also a useful way to record damaged or expired stock. If a customer returns an item, the sales return receipt will have a Return Quantity field and a Credit-Only field. The latter should be used if the item is defective or expired. If an item is damaged or expired, the quantity should be entered in the Credit-Only field, so it will not be added to your stock. Sales return receipts can also be configured to have advanced inventory tracking, allowing you to add serial numbers and batch numbers.
Recording a sales return is essential for ensuring that your books are accurate. If a customer returns an item for a discount, the return will reduce the account receivable balance. When a sale against cash is made, the seller must deduct the amount of the refund or credit from the sales account.
The next step in creating a sales return is to enter the credit memo number. Peachtree does not ask you to print or save credit memos, but it will ask you to record the number. If you don’t record the credit number for the return, Peachtree will journalize it in the sales order without the credit number. Adding a credit number will ensure that the sales return will be recorded correctly.
The sales return account is also known as a contra-revenue account. This means that the sales return may occur after the original sale period, but the sales return amount is recognized in the later period. The reason for this is that the seller is able to control the amount of sales returns by requiring the buyer to provide a sales return authorization number before the return is received. Often, a seller cannot resell a sale if the goods received are damaged or faulty.
The cost of goods sold is another important consideration when accounting for a sales return. Sales return will reduce the gross margin on the sales because the firm has not earned profit from the sale. Therefore, the cost of sales must be adjusted to include the cost of goods returned. If the cost of sales was $55,000 with a 25% gross margin, the cost of goods sold would be $44,000.
Accounting for sales returns is relatively easy. A business will issue refunds to customers and update its accounts to reflect the amount of refunds received from customers. In addition to adjusting the sales revenue account, it can also use a separate sales return account to record the money it refunds to customers. For example, let’s assume that store ABC refunds a customer $3500 for a returned product. In this case, the sales return account will reflect this amount as a negative number.