When customer returns defective goods of a company which of the following entries should be made
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We have a normal trading business in which we procure following the PO--->MIGO---->MIRO process and sale the items to customer following the SO---->PGI----->Billing/Invoice If there is a damage goods found by customer, the customer may return the goods to vendor directly. Either Vendor takes the returns without replacing or replaces the items. 1. Customer sends back items to Vendor with no replacement In case of items accepted by Vendor and not replaced, please suggest the business process in SAP in both Sales and Procurement. Please suggest the Accounting entries that will be posted in Returns to Vendor directly from Customer, both in Sales and Procurement with the T Codes. 2. Customer send the items to Vendor for replacement How this can be mapped in sap and impact on accounting. Kindly suggest the process and accounting entries with the T Codes. Thanks Returns Outward: DefinitionMerchandise that is returned to suppliers is known as returns outward. If merchandise purchased are not received according to specifications or if they are defective, buyer can return them to the seller or ask the seller for an allowance (e.g., reduction in price). To record such returns and allowances, the purchase returns and allowances account is used in the buyer’s books. Returns Outward: ExplanationIf goods are returned to a supplier, or if an invoice received from the supplier has an overcharge, a credit note would be sought to rectify the situation. All credit notes received from the supplier are entered in the returns outward book. The entries are listed in more or less the same manner as invoices received are entered in the purchases book. As the various credit notes may bear different serial numbers, these are re-numbered at the time of making entries in the returns outward book for convenience in filing and reference. Example: Recording Transactions in the Returns Outward BookThis example shows how to record the following transactions in John’s returns outward book.
The returns outward book will appear as follows: The journal entries for the return of merchandise purchased for cash and merchandise purchased on account are different. Return of Merchandise Purchased for CashWhen merchandise purchased for cash are returned to the supplier, it is necessary to make two journal entries. In the first entry, we debit the accounts receivable account and credit the purchase returns and allowances account. This entry is made to recognize the return of merchandise. In the second entry, we debit the cash account and the credit accounts receivable account. This entry is made when a refund is received from the supplier for the returned merchandise. ExampleOn 1 April 2016, Y Merchants purchased merchandise for $2,500 in cash from Z Traders. Upon delivery, Y Merchants found serious defects in the items, meaning that they could not be sold to customers. Y Merchants returned the merchandise to Z Traders on the same day. On 2 April 2016, Z Traders returned the full amount in cash to Y Merchants. Required: Make a journal entry in the books of Y Merchants that records:
SolutionReturn of Merchandise Purchased on AccountWhen merchandise purchased using an account are returned to a supplier, it is necessary to debit the accounts payable account and credit the purchase returns and allowances account. ExampleOn 1 April 2016, Y Merchants purchased merchandise for $2,500 on account from Z Traders. Upon delivery, Y Merchants found that the merchandise was defective and, therefore, could not sell it to customers. Y Merchants returned the merchandise to Z Traders on the same day. Required: How would you journalize the above transactions in the books of Y Merchants? Solution Connect to a Financial AdvisorWe hope we have provided you with sufficient information about the proper accounting treatment for returns outward. If you have any more questions, we’d be happy to refer you to a financial advisor in Ada County, ID. For those of you who live outside the vicinity, please visit our financial advisor page. Frequently Asked QuestionsWhat are returns outward?Merchandise that is returned to suppliers is known as returns outward. If merchandise purchased is not received according to specifications or if they are defective, the buyer can return them to the seller or ask the seller for an allowance (e.g. reduction in price). Why would I need to create a purchase return journal entry?If you need to refund a customer for a purchase they made from your business, you will need to create a purchase return journal entry. This will help you track the returned merchandise and ensure that the vendor or supplier provides you with a credit for the returned items. How do I create a purchase return journal entry?To create a purchase return journal entry, you will first need to identify the merchandise that was returned. Next, you will need to record the credit that was given to you by the vendor or supplier. Finally, you will need to subtract the cost of the returned merchandise from your total sales for the period. How is a journal entry for purchase returns different from a journal entry for a return of merchandise purchased for cash?When merchandise purchased for cash is returned, it is necessary to make two journal entries. The first entry debits the accounts receivable account and credits the purchase returns and allowances account. The second entry debits the cash account and credits the accounts receivable account. When merchandise purchased on account is returned, only one entry is necessary, which debits the accounts payable account and credits the purchase returns and allowances account. Is there a different journal entry for merchandise returned for a credit note?No, the journal entries are the same whether merchandise is returned for a credit note or for a refund of cash. In both cases, the accounts payable or accounts receivable account is debited, and the purchase returns and allowances account is credited. About the Author True Tamplin, BSc, CEPF®True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists. True is a Certified Educator in Personal Finance (CEPF®), a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics. To learn more about True, visit his personal website, view his author profile on Amazon, his interview on CBS, or check out his speaker profile on the CFA Institute website.
What is the journal entry when customer return material?When merchandise is returned, the sales returns and allowances account is debited to reduce sales, and accounts receivable or cash is credited to refund cash or reduce what is owed by the customer. A second entry must also be made debiting inventory to put the returned items back.
How do you account for customer returns?When a customer returns something they paid for with credit, your Accounts Receivable account decreases. Reverse the original journal entry by crediting your Accounts Receivable account. Although you don't lose physical cash, you lose the amount you were going to receive.
Which of the following is used to record returns from customers?Sales Return (Journal) Book Sales return books are used to record the goods returned by customers to them on credit.
Is returned goods debit or credit?Returns outwards are goods returned by the customer to the supplier. For the supplier, this results in the following accounting transaction: A debit (reduction) in revenue in the amount credited back to the customer.
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