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If a return is made by the costumer, the following items are journalized: Debit to Sales...

If a return is made by the costumer, the following items are journalized: Debit to Sales Returns and Allowances and Credit Cash (or Accounts Receivable), Debit Inventory and Credit Cost of Goods Sold.

What if the item isn't returned but the customer agrees on a lower price due to small negligible faulty on the goods? What should be the journal entries? It is only Debit to Sales Returns and Allowances and Credit Cash (or Accounts Receivable)?

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Answer #1

In such a case, the trader is effectively giving a discount to customer. Such a discount can be Trade Discount, or a Cash Discount.

Trade Discounts are not recorded in the books of accounts. Accordingly, the sales are recorded net of trade discounts offered.

Cash Discount are recorded in the books of accounts. In such a case, the sales revenue earlier recorded at gross amount, needs to be decreased by the amount of cash discount allowed.

Following Journal Entry should be recorded to consider Cash Discount:

Debit Discount Allowed (which will further go to Income Statement)
Credit Receivable
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