Sales Returns Definition

Sales returns are when a customer returns merchandise, to a merchant, he doesn't want because it's defective, damaged, or the wrong type, size or amount.

Accounting Entry

When customers purchase merchandise on credit, the accounts receivable account is debited for the amount and the sales account is credited for the same amount. The entries are reversed if the customer returns the items.

Net Sales

Gross sales are the total amount of goods sold before any deductions and expenses. When there are sales returns, they are deducted from gross sales to get a net sales figure, which is a more accurate reflection of a company's sales, according to Investopedia.

Prevention/Solution

Too many sales returns can affect the profitability of a company. When there are too many sales returns, a company needs to determine the cause of the returns and fix the problem.

Considerations

Many merchants must determine what to do with sales returns. Sometimes items can be sold for their original price--as long as they're not damaged; sometimes items are sold at a discount.

Cash/Credit Transaction

When sales are returned, the customer's account must be credited if the merchandise was purchased on credit. Cash is given in the case of cash sales.

References

• Investppedia: Net Sales
• Principles of Accounting: Sales and Sales Returns
• Help Sap: Sales Returns