On Jan. 5, a customer returned merchandise that has been purchased earlier on credit. The original sale was for $500 and the cost to the seller was $150.What is the required journal entry to record the return on the seller books? Assume all merchandise can be resold to another customer.

Explanation:

When a sales is made on credit, the primary accounts that are affected are the sales accounts and the accounts receivable , with a credit entry of the sales value to the sales account and the same value in the receivable account. We also need to know that the cost of the item is credited to the inventory and debited to the cost of goods respectively.

However , when the sales is returned , the above entry will be reversed and a reversal entry is recorded as below

Credit account  receivable - $500

Debit sales return = $500

Debit merchandise inventory $150

Credit cost of goods $150

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