Sales is done by every company because without sales a company cannot survive but just like everything is not perfect not all sold items are perfect which leads to sales return from the customers to the company. Sales are made in two ways one is cash sales and other is credit sales and company has to make entries in the books of accounts so as to make adjustment for sales return, lets look at the journal entry for sales return for both cash return sales and credit return sales–
Cash sales return
When goods are sold in cash and they are returned then the following journal entry is passed –
Sales return account Dr
To cash account
In the above since goods have returned sales return account is debited and the company has given back cash to the customer and that is the reason why cash account is credited following the principle credit what goes out.
Credit sales return
When goods are sold on credit and they are returned then the following journal entry is passed –
Sales return account Dr
To Receivable account
In the above, since goods have returned sales return account is debited and since debtors have reduced receivable account is credited so as to reflect a decrease in the asset of the company.
As one can see from the above that sales return apart from having a negative impact on the image of the company, it also requires some adjustments in the books of accounts of the company so as to reflect the true picture about the sales of the company.