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6 December, 15:29

During 2018, its first year of operations, Hollis Industries recorded sales of $10,600,000 and experienced returns of $720,000. Cost of goods sold totaled $6,360,000 (60% of sales). The company estimates that 8% of all sales will be returned. Prepare the year-end adjusting journal entries to account for anticipated sales returns under the assumption that all sales are made for cash (no accounts receivable are outstanding). (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

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  1. 6 December, 16:08
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    Dr Revenue $720,000

    Dr Inventory $432,000

    Cr Cost of sales $432,000

    Cr Liability $720,000

    Explanation:

    To record the goods that were returned (60% of sales) = 60% * 720,000 = $432,000

    Dr Inventory $432,000

    Cr Cost of sales $432,000

    To adjust revenue for the sales, if cash was returned to the customer when the goods were returned

    Dr Revenue $720,000

    Cr Cash $720,000

    If cash was not returned to the customer

    Dr Revenue

    Cr Liability (Deferred Revenue/Payable to customer)
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