Question

Bergstrom accepted the return of merchandise by a customer. The merchandise had been sold on account, and payment had not been received on the date of return. The returned goods retailed for $400, but cost Bergstrom only $300. The appropriate journal entry for Bergstrom is:

Answer 1

Debit Sales Return and allowances $400

Credit Accounts receivable $400

Step-by-step explanation:

In the given scenario the sale was made on account. That means that no money was collected for the transaction.

So we do not consider the $300 it would cost Bergstrom.

When a good is sold on account, the accounts receivable is debited for the sale amount ($400). As the customer pays the money owed the account is credited to balance it up.

In this case however the good is being returned. So we will debit the Sales Return and Allowance account to recognise the returned item.

Accounts receivable is credited to remove the credit sale since the product has been returned.