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1 April, 13:06

Cycle Wholesaling sold merchandise on account, with terms n/60, to Sarah's Cycles on February 1 for $1,000 (cost of goods sold of $600). On February 9, Sarah's Cycles returned to Cycle Wholesaling one-quarter of the merchandise from February 1 (cost of goods returned was $155). Cycle Wholesaling uses a perpetual inventory system, and it allows returns only within 15 days of initial sale.

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  1. 1 April, 16:42
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    Accounts Receivables 1000 debit

    Sales Revenues 1000 credit

    --to record sale--

    COGS 600 debit

    Inventory 600 credit

    --to record COGS of the previous sale--

    Sales Returns 155 debit

    Accounts Receivables 155 credit

    --to record returned goods--

    Inventory 155 debit

    COGS 155 credit

    --to record goods in good state returning to inventory--

    Explanation:

    The sale will be reocrded normally then, the return will have two impacts:

    first it will decrease the amount of the receivables and make the net sames decrease therefore we will decrease net sales

    Last, for the inventory as the godo are in good form and could be resale we record the reception of those good and reverse that portion of COGS sold
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