Question

Figure out the journal entry for....

June 15 Record a sales return and allowance

One of the cabinets delivered by Brandon's Cabinet Shop to Ralph Morehead on June 11 was slightly damaged. A credit memo for $214.00, which included 7% sales tax, was issued to the customer, who refused to accept the cabinet. Invoice number: B3454. Credit Memo: CM006. Vendor Number: 11625. (to determine the selling price of the cabinet, divide the total of the credit memo by 1.07)

Answer 1

To record Sales Return , We have to Debit Sales Return and allowance account which is later reduce in Income statement from Sales , As Sales Return Cause reduction in Income it should be debited and as the to decrease Account receivable account we need to credit it

Entry

Date		Debit	Credit
June15	Sales Return and allowance	200
	Sales Tax	14
	Ralph Morehead		214
	(Being Sales Return against cash memo CM006, Invoice number B3454 dated June 11 Sale )

Explanation ,

As on date of Sales, Sales Tax being Credited with Sales total amounting to 214 and it should be reverse on Sales Return

Sales =214/1.07 =$200 ( As Credit memo includes Sales Tax which should be exclude from sales value )

Sales 200 and Sales Tax 7% of sale =$14

Enrry on date of Sales will be as Follow

		Debit	Credit
June 10	Account Receivable /Ralph Morehead	214
	Sales Tax		14
	Sale		200
	( To record sale of Cabinet )

Now the above entry we have to reverse which was ask in Question . Credit memo is issue by Seller to Buyer as a prove of Reduction in Sale value due to Quality issue or Return .

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