Sales return

Definition

A sales return occurs when a customer returns goods previously purchased from a seller, leading to a reversal of the original sale transaction. This usually results in a refund or store credit for the customer and a reduction in revenue for the seller.

5 Must Know Facts For Your Next Test

1. Sales returns reduce the total revenue reported on the income statement.
2. The returned goods may be added back to inventory if they are resalable.
3. Sales returns are recorded in a contra-revenue account called Sales Returns and Allowances.
4. Proper documentation, such as a return receipt or authorization, is necessary to process sales returns accurately.
5. Frequent sales returns can indicate issues with product quality or customer satisfaction.

Review Questions

Related terms

Sales Allowance: A reduction in the selling price of goods due to minor defects or issues, without returning the product.

Contra-Revenue Account: An account that reduces total revenue; examples include Sales Returns and Allowances.

Inventory:

Goods available for sale that are held by a business; affected by sales returns when items are restocked.