Question

In its first month of business, Clayton Corporation reports sales of $1,750,000 and cost of goods sold of $950,000. Clayton estimates that current and future returns and allowances will equal 4% of those sales. Prepare the October 31 adjusting entries necessary to record the revenue side and cost side estimates for returns and allowances.

Answer 1

Solution:
	Adjusting Entries
Date	Particulars	Debit	Credit
31-Oct	Sales and return allowances (4%of 1,750,000)	$70,000
	Accounts Receivable		$70,000
	(For Estimated sales return)
31-Oct	Inventory - Right of return (4% of 950,000)	$38,000
	Cost of sales on estimated returns		$38,000
	(For Estimated cost of sales return)
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