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In October 2006 A sold some goods on sale or return terms for 2005. Their cost to A was $1500. The transaction has been treated as a credit sale in A’s finacial statements for the year end 31 October 2006. In November 2006 the customer accepted half of the goods and returned the other half in good condition.
Q:what adjustments, if any,should be made to th financial statements?
A,sales and receivables should be reduced by $2500. and closing inventory increased by $1500.
B,No adjustment is neccessaryi think no adjustment is neccessary since the year end has been passed. but the answer is A, will you explain this for me ?
Goods on sale or return only become a sale on the date the customer says that they are buying them.
Until then there is no sale.
Here, at 31 October the customer had said nothing, so at 31 October there had been no sale.
So…..since we had recorded it as a sale we need to remove it.
No sales – so reduce by $2500 (you have mistyped that bit 🙂 )
Still in inventory – so increase inventory by the cost of $1500
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