Question

Rusty Hardware makes only cash sales. It began 2021 with a credit balance of $33,300 in the refund liability account. Sales during 2021 were $730,000. Rusty estimates that 5% of all sales will be returned. During 2021, customers returned merchandise for credit of $30,600 to their accounts. What is the balance in the refund liability account at the end of 2021?

Answer 1

$39,200

Step-by-step explanation:

Sales return allowance is a contra revenue account. It is deducted from the sales to calculate the net sales value. It is an adjustment account for the returns made by the customers.

Ending Balance of Sales return Allowance = Opening Balance of Allowance + Expected Sales return - Actual Sales sales return

As per given data

Opening Balance = $33,300

expected Return = $730,000 x 5% = $36,500

Actual Return = $30,600

Placing values in the formula

Ending Balance of Sales return Allowance = $33,300 + $36,500 - $30,600 = $39,200