Question

Botanic Choice sells natural supplements to customers with an unconditional right of return if they are not satisfied. The right of return extends 60 days. On February 10, 2021, a customer purchases $6,000 of products (cost $3,000) on account. Based on its prior experience, Botanic Choice estimates returns will be 15%. On April 5, 2021, the customer returns $400 of merchandise.

Required:

Prepare the necessary journal entries to record the transactions on February 10, 2021, and April 5, 2021.

Answer 1

Date	Particulars	Debit	Credit
10-Feb	Accounts Receivable	$ 6,000.00
	Sales		$ 5,100.00
	Refund Liability (6000*15%)		$     900.00
	( to record sale and possibe return)
10-Feb	Cost of Goods Sold	$ 2,550.00
	Refund Asset (3000*15%)	$     450.00
	Inventory		$ 3,000.00
	( To record COGS and for possible return)
5th April	Refund Liabilty	$     400.00
	Accounts Receivable		$     400.00
	(To record actual return)
5th April	Inventory	$     200.00
	Refund Asset (3000/6000*400)		$     200.00
	(to Record Cost of goods returned)