Sales returns and allowances journal

Definition and explanation:

When sales are returned by customers or an allowance is granted to them on account of short delivery, breakage or low quality etc. , the entry is made in sales returns and allowances journal. Return of merchandise sold for cash is entered in cash payment journal or cash book.

When merchandise are returned by customer or allowance is granted to them a credit memorandum (also known as credit memo) is prepared. It is prepared in duplicate, the original memo is sent to customer and the duplicate copy is retained. A credit memo serves as voucher for entries in sales returns and allowances journal. Like debit memos, all credit memos are serially numbered.

Format of sales returns and allowances journal

Format of sales returns and allowances journal is shown below:

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(1). Date column is used to record the date on which customers return merchandise sold to them.

(2). Account credited column is used to record the account title of the customer whose account is credited for the return of merchandise.

(3). Credit memo No. Column is used to record the credit memorandum number related to the merchandise returned.

(4). Posting reference column is used to record the account number at the time of posting entries from sales returns and allowances journal to ledger accounts.

(5). Amount column is used to record the amount of merchandise returned by customer.

Posting entries from sales returns and allowances journal to ledger accounts

Entries from sales returns and allowances journal are posted to relevant accounts in the accounts payable subsidiary ledger and general ledger. The procedure is described below:

  1. The individual entries in the sales returns and allowances journal are posted as credits to their respective accounts in the accounts receivable subsidiary ledger.
  2. The total of sales returns and allowances journal is posted as debit to the sales returns and allowances account and as credit to the accounts receivable account in the general ledger.

Example

Record the following transactions in the sales journal and sales returns and allowances journal and post to ledger accounts.

Year: 2016
Apr. 01:
Sold merchandise on account to Al-Habib Co. $875, invoice No. 744.
Apr. 05: Sold merchandise to on account to Green Brothers $1,780, invoice no. 745.
Apr. 08: Merchandise returned by Al-Habib Co. $50, credit memo no. 42 is issued.
Apr. 14: Sold merchandise on account to Star Brothers $1,285, invoice no. 746.
Apr. 19: Merchandise returned by Green brothers $100, credit memo no. 43 is issued.
Apr. 25: Issued credit memo no. 44 of $120 to Star Brothers for defective merchandise returned by them.

Solution

Sales journal and sales returns and allowances journal:

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Accounts payable subsidiary ledger:

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General ledger:

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