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Hi Mr John….
No entry had been made for the refund of 2620 made by cheque to Woolf in March 20X7, in respect of defective goods returned to Tiffany.Woolf, who had already paid for the goods ,returned them on 28 February 20X7.
The bookkeeper is Tiffany…
What correction should be made in journal entry?
Many thanks…Have you watched our free lectures, because I do explain refunds in the lecture!
When cash is refunded, the entry is the reverse of when cash is received.
So Credit Cash and Debit Receivables (and also there will be a debit in Woolf’s personal account in the receivables ledger).Yes,I’ve watched them…But anyway I can’t get it…
Suppose, I made a cash sale , credit sale and debit cash..
If my customer returns those goods, I should credit cash and debit sale or returns account as you said in your lecture which reduces sales figure…Returns are not the same as refunds. A refund is simply a repayment of cash which could be for several reasons, one of which could be that they returned goods that they had already paid for.
If a customer returns goods that were bought on credit, then we debit sales and credit receivables. If we then refund the cash because they had already paid for the goods, then we credit cash and debit receivables.
If (and unlikely in the exam) a customer returns goods that were bought for cash, then we credit cash and debit sales (assuming that we gave them the cash back).
I don’t know but I think when a customer (who bought the goods on credit and later paid ) returned the goods we should debit sales and credit a new account called Refund Payables..
Then if we refund the cash , then we would credit cash and debit Refund payables….No.
The entry is as I typed above – you credit receivables when a customer returns goods.
The reason is that they might not refund the cash. If it is a regular customer it is more likely that they will leave it as a credit on the account so that the customer pays less next time they place an order.
Thank you……As you said when cash is refunded , credit cash debit receivables but assuming that transactions for returned goods have already been done : credit receivable( meaning we owe that customer) and debit sales…
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