Question

Knowledge Check 01
At the end of its first year of operations, Loring Industries estimates that sales returns in the amount of $20,000 will occur during Year 2. The cost of the inventory expected to be returned is $12,000. All of Loring’s sales are made for cash and the company uses a perpetual inventory system. Assume that no returns have occurred as of the end of Year 1. Prepare the appropriate adjusting journal entry to record the expected sales returns and the inventory expected to be returned in Year 2.

Journal entry worksheet 2 Record the $20,000 estimate of expected returns from customers Note: Enter debits before credits. Event General Journal Debit Credit 01 Record entry Clear entry View general journal

When merchandise returns are anticipated, an allowance for sales returns should be recorded as a contra account to accounts receivable and sales revenue also should be reduced by the anticipated sales returns.

Answer 1

1. journal entry to record the expected sales returns
		Debit	Credit
	Sales Return	20000
	Refund Liabities		20000
	(Expected Return)
2. the inventory expected to be returned in Year 2.
	Inventory-Sales Return	12000
	Cost of goods sold		12000
	(COGS of expected return of goods)