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Hello Sir
if the credit notes are issued post year end to customers, do we have to adjust the current year Financial Statements?
Welcome to my forum! Please see my comments on this post https://opentuition.com/topic/post-year-end-credit-notes-and-the-allowance and if that doesn’t completely answer your question, please ask further.
My understanding:
If the goods were returned during the current fianacial year and credit notes were issued post year end then, the auditor has verifty whether the sales recognised in the previous year is reversed.
if the goods were returned post year end then do we need to create an allowance for the loss of sales in current year financials?
The double entry for the issue of a credit note is Dr Revenue/Cr Receivable and each credit note will have a reason for why it is raised e.g. return of goods or correction of an over-pricing error.
Suppose the y/e 31 December. All the credit notes raised in the month of December would be captured by the accounting system and reduce revenue and receivables.
The issue is the credit notes raised at the beginning of January that will most likely relate to sales during the year to 31 December. These are not “captured” by the accounting system on 31/12 because they haven’t yet been raised. It doesn’t matter whether the goods were physically returned in December or January – an adjustment will need to be made – it might be called something like a “credit note allowance accrual” or “accrued credit notes”.
Its not relevant to the accrual whether the goods were physically returned in December or January – but if returned in January there would also need to be an adjustment Dr Inventory (SoFP)/Cr Inventory (SoPL) at NRV for this event after the reporting period (IAS 10).
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