Question

Manning Corporation uses the periodic inventory system. On April 1, Manning Corporation sells merchandise on account for $15,000 with terms 1/15, n/30. Manning Corporation had paid $6,000 to acquire the merchandise. The buyer is not satisfied with some of the merchandise and on April 7 returns merchandise with an invoice price of $1,000 to Manning Corporation. The merchandise returned to Manning Corporation had cost Manning Corporation $600. On April 10, the buyer pays for the merchandise it retains. How would Manning Corporation record the buyer’s return of merchandise on April 7?

Answer 1

The entry on April 7 is:

Dr Sales returns and allowances $1,000

Cr Accounts receivable $1,000

Step-by-step explanation:

Under periodic inventory system, returns made by the customer should be recognized and closed to sales returns and allowances account. Thus, Manning Corporation should debit sales returns and allowances and credit account receivable in the amount of $1,000. Sales returns and allowances is a contra account of Sales. In effect, this will decrease sales made by the period.