Q5-16RQ - Horngren'S Financial And Managerial Accounting

Question

When granting a sales allowance is there a return of merchandise inventory from the customer? Describe the journal entry(ies) that would be recorded.

Step-by-Step Solution

Answer

When a business entity grants sales allowance to its customers, it does not receive the merchandise back in such a situation. 

Meaning of Sales Allowance

In accounting, the term “sales allowance” refers to the situation where a customer keeps the defective or damaged goods and, in return, demands a reduction in the selling price of the goods.

Required journal entries

In the case of sales allowance, no merchandise is returned by the customer to the business or seller. 

Hence, the journal entry would be:

Date	Accounts and Explanation	Debit ($)	Credit ($)
	Sales allowance	XXX
	Accounts receivable		XXX
	(To record the sales allowances)