Question

A store sells merchandise to its customers. It knows that, on average, a certain percentage of its sales will be returned by customers. (Amount sold 165,328.93)

(Average percentage of sales which is returned by customers 4.5) (sales tax rate, in percent 5.75) (Amount later returned by a particular customer 209.18) Make the entries for the sales and for the amount which is estimated that will be returned. (Assume that sales are made for cash.) Then make a third entry for the amount (see separate sheet) which is returned by a particular customer. The amount returned is the price of the merchandise itself. The customer received that amount plus the sales tax that had been charged.

Answer 1

When the sales will be made the following entry would have been made:

Cash A/c Dr. (The amount charged from customers, Price+Tax)

Sales A/c Cr. (The amount of merchandise sold, Price)

Sales Tax A/c Cr. (Tax Charged)

Sales amount =165,328.93

Sales Tax = (5.75%) = 9506.41

Cash Recd. = 174835.34

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Sales Return Dr. (4.5% of Sales)

To, Provision for Sales Return

We will not book provision for Sales Tax reversal as it is a statutory due which is required to be paid on actual basis.

so, 4.5% of Sales = 7439.80

Sales Return Dr. 7439.80

To, Provision for Sales Return 7439.80

(Being Estimated sales return for the period booked)

The Sales Return amount will be shown by reducing it from sales amount.

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Actual Sales Return:

Provision for Sales Return Dr. (Actual Return amount)

Sales Tax A/c Dr. (Tax on actual return amount)

Cash A/c Cr. (actual return+tax)

Cash Sales Return made of 209.18

Tax on Sales Return = 5.75% of 209.18 = 12.03

Provision for Sales Return Dr. 209.18

Sales Tax A/c Dr. 12.03

Cash A/c Cr. 221.21

(Being Cash returned to customer)