Botanic Choice sells natural supplements to customers with an unconditional sales return if they are not satisfied. The sales returns period extends 60 days. On February 10, 2018, a customer purchases $4,000 of products (cost $2,000). Assuming that based on prior experience, estimated returns are 20%. The journal entry to record the actual return of $250 of merchandise includes a

a. credit to Allowance for Sales Returns for $250.

b. credit to Returned Inventory for $125.

c. debit to Returned Inventory for $125.

d. debit to Estimated Inventory Returns for $125.

Question

Business

Pace

19 October, 00:03

Botanic Choice sells natural supplements to customers with an unconditional sales return if they are not satisfied. The sales returns period extends 60 days. On February 10, 2018, a customer purchases $4,000 of products (cost $2,000). Assuming that based on prior experience, estimated returns are 20%. The journal entry to record the actual return of $250 of merchandise includes a

a. credit to Allowance for Sales Returns for $250.

b. credit to Returned Inventory for $125.

c. debit to Returned Inventory for $125.

d. debit to Estimated Inventory Returns for $125.

+1

Answers (1)

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Elijah Watts · Answer 1

Option (c) is correct.

Explanation:

The Journal entries are as follows:

(a) Sales Returns & Allowance A/c Dr. $250

To Account Receivable $250

(To record the accounts receivable)

(b) Returned Inventory A/c Dr. $125

To Cost of Goods Sold $125

(To record the actual return)

Workings:

Returned Inventory = 250 * (2000 : 4000)

= $125