How do you account for sales returns?

Record the Sales Return Transaction Debit sales returns and allowances by the selling price. Debit the appropriate tax liability account by the taxes collected on the original sale. Credit cash or accounts receivable by the full amount of the original sales transaction.

How do you treat sales returns in accounting?

The Sales Returns and Allowances account is a contra revenue account, meaning it opposes the revenue account from the initial purchase. You must debit the Sales Returns and Allowances account to show a decrease in revenue.

Where does sales return go on a balance sheet?

Income Statement to Balance Sheet Your sales returns and allowances don’t go on the balance sheet, but they do affect it. Say you’re making out your financial statements for the current quarter. Your net income after returns, allowances, cost of goods sold and taxes is $39,000.

Are sales returns debited or credited?

The seller records this return as a debit to a Sales Returns account and a credit to the Accounts Receivable account; the total amount of sales returns in this account is a deduction from the reported amount of gross sales in a period, which yields a net sales figure. The Sales Returns account is a contra account.

Is sales return an expense or revenue?

In the sales revenue section of an income statement, the sales returns and allowances account is subtracted from sales because these accounts have the opposite effect on net income. Therefore, sales returns and allowances is considered a contra‐revenue account, which normally has a debit balance.

Is a purchase an asset or expense?

In double-entry bookkeeping, expenses are recorded as a debit to an expense account (an income statement account) and a credit to either an asset account or a liability account, which are balance sheet accounts. The purchase of a capital asset such as a building or equipment is not an expense.

Which type of account is sales return?

Sales returns is a nominal account. Generally, sales returns show zero or favourable balance (Debit balance). It can also be termed as contra-revenue account as sales returns reduce our sales revenue.