Goods Return Journal Entry

Returned goods are a part of doing business. Retailers across the globe expect a certain percentage of purchased items to be returned. Most returns are handled quickly and efficiently, but some can be problematic. These are usually due to damaged goods, incorrect items, or missing parts. Whatever the reason for the return, businesses must have a plan in place to handle them.

The first step is to determine who will handle the return. This is typically done by customer service or a dedicated returns department. Once the item has been received, it must be inspected to determine the cause of the return. If it is due to damage or an error on the part of the retailer, a refund or replacement should be issued immediately. If the return is due to a change of mind, the item should be inspected for signs of wear and tear. A decision can then be made about whether to offer a refund, exchange, or store credit.

Returns can be costly for businesses, but having a clear returns policy helps to minimize these costs. It is also important to remember that returns are a normal part of doing business and should be handled in a professional and courteous manner.

Journal Entry for Goods Return

The goods return will impact the seller’s financial statement. The company has to reverse the transaction which records during the sale process.

The journal entry is debiting Sale Return and credit accounts receivable.

Another journal entry is debiting inventory and credit cost of goods sold.

Example

Company ABC sells the shoes online directly to the customers. The company allows the customer to return the goods if they are not satisfied. During the month, company received a goods return of $ 35,000. The cost of all these goods is $ 20,000. All of these goods returned are credit sale. Please prepare a journal entry for goods return.

It is the transaction the company receives goods returned from the customers after completing the purchase.

The inventory cost $ 20,000 and was sold to a customer for $ 35,000 on credit. And subsequently, the customer decides to return the goods.

First, we need to reverse the accounts receivable and record sale return.

The journal entry is debiting sale return $ 35,000 and credit accounts receivable $ 35,000.

Second, we need to recognize inventory and reverse cost of goods sold. The journal entry is debiting inventory $ 20,000 and credit cost of goods sold $ 20,000.