Question

Credit memos are created when a product is returned. Credit memos reduce A/R (accounts receivable) by crediting the account, and it writes off the invoice. This also records a debit to the Sales Returns and Allowances account. You have noticed that the A/R clerk has created an abnormally high number of credit memos. You also notice the inventory does not reflect the additional inventory resulting from the sales returns and allowances. What would you do, and how would you document your decision?

Answer 1

Answer:

Consider the following analysis.

Explanation:

Sales/Deals Returns and Allowances :

Deals returns and remittances is a detail showing up in the wage explanation. At the point when this sum is huge in extent to add up to deals, it shows that a business is experiencing difficulty transporting amazing products to its clients.

The business returns and remittances line thing is displayed as a subtraction from the gross deals line thing, and is proposed to decrease deals by the measure of item comes back from clients and deals stipends allowed. It is followed in the pay proclamation by a net deals line thing, or, in other words that includes the gross deals line thing and the negative sum in the business returns and recompenses line thing.

This detail is the conglomeration of two general record accounts, which are the business returns account and the business recompenses account. Both of these records are contra accounts, which implies that they counterbalance net deals. The normal equalization in these records is a charge, or, in other words of the common credit balance in the gross deals account.

The two records may at times be joined into a solitary record in the general record. This commonly happens when the parities in these records are generally little, so there is no reason for following returns and stipends independently.

The extra stock raised from the business return and stipends must be added back to the stock by following advances and records:

1). On consistent schedule, all stock so raised by deals return and stipends must be reclaimed to the stock by issued stock got back note.

2). At the point when an item is physically returned, it builds stock and reductions related expense of products sold perceived at the season of offer. The accompanying diary passage is made :

Inventory A/c Dr

To Cost of goods sold A/c

(Debit the inventory and Credit the cost of goods sold)