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Returns of Stock
UNIT 4 CH 13
Question | Answer |
---|---|
Purchase Return: | The return of stock by our firm to a supplier |
Sales Return: | The return of stock to our firm by a customer (Neg R) |
State four reasons why stock may be returned to a supplier. | faulty/damaged ___ wrong size/colour/shape/model ___ Too many items of stock were purchased. ___ The customers simply changed their mind. |
one benefit that may be derived by accepting returns from customers who change their mind. | may actually generate greater sales, customers may be more willing to buy if they know they can return the product if it turns out to be unsuitable. |
Credit note | Source doc that verifies the return of stock either to a trade creditor of by a trade debtor. |
Five pieces of data that must be noted on a credit note | 1) Type of stock __ 2) quantity ___ 3) name of customer ___ 4) reason for return ___ 5) unit cost |
How can a credit note can be used to distinguish a purchase return from a sales return. | Business returning the stock is identified in the middle of Cr. Note; business receiving the stock as a return is identified at the top.. |
Note about Credit Note (Cr. Note): | Cr.note can be “store cash” (like returning something to cotton on). It is evidence that stock = returned and debt owed by D (or owed to C) is reduced. |
In stock card how is CP of stock determined for purchase return: | Cr. Note must identify the CP of the stock that is being returned. Although it is recorded in the OUT column of a stock card, FIFO is not applied to purchase returns. |
Entries necessary to record a purchase return in GJ: | DR: CC and creditor (subsidiary ledger) __ CR: SC AND GST C *narration: x bla returned to supplier - y reason (Cr. Note x) |
‘Purchase Return’ is not used as a cross-reference in the Creditors Control account.: | No Purchase Return ledger. The Debit entry is a combo of SC and GSTC. *purchase return = direct reversal of purchase. |
Purchase Return effect on Acc. Eq: | A - Decr (SC) ___ L - Decr ( Decr CC and inc GST C) __ OE - no effect. |
How is a purchase return is reported in the financial statements: | Not CFS (not cash flow), Not in IS (not a R or E). It will be reported in BS as a change in balances of SC, GST C and CC. |
In stock card how is CP of stock determined for sales return: | FIFO. Use CP in most recent transaction in OUT column. The stock card should be returned to the position it would have been if the sale had never taken place. |
GJ entries for sales return: | DR - Sales Returns and GST C ___ CR - DC and sub debtor. ___ DR SC and CR COS. *narration: x stock returned by customer - y reason (Cr. Note x) |
Why a sales return leads to a reduction in the GST L: | this is GST we will never receive (due to the decrease in amount owed by the debtor), and therefore now do not owe to the ATO. |
Effect of a sales return on the acc. Eq: | A - decr (Decr DC incr SC) __ L - Decr (GSTC) ___ OE - Decr (Sales return less COS = less NP) |
Why Sales Returns are reported separately in the IS: | So the owner is made aware of the level of Sales Returns and can investigate the cause of a high Sales Return figure. |
Two reasons for high Sales Returns: | Goods are of inferior quality ___ customers have been provided with goods that did not suit their purpose. |
How Net Sales is reported in IS: | UNDER HEADING REV: Sales x less Sales Returns y = x-y |
Why the CP of a sales return is not reported separately in the IS: | The effect of any sales returns will be recorded directly in the COS account, and accounted for in the figure closed to the P& L Summary account. Thus, the ‘net’ figure for COS is reported in the IS. * don’t double count it. |