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Returns of Stock

UNIT 4 CH 13

QuestionAnswer
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.
Created by: 96.0