Can you explain to me how I would journalize returned merchandise with 3/10 credit terms. Item purchased on credit and has not been paid for yet.

First, if it hasn't been paid yet, ignore the credit terms. That means 3% can be taken if the invoice is paid within 10 days, but since it hasn't been paid yet, it's irrelevant.

When there's a return, you sort of are reversing your original entry. The original entry should have been to debit Accounts Receivable and credit Sales. It's no longer owed since it was returned, so you credit Accounts Receivable to reverse that out. But instead of debiting Sales directly to reverse that part out, you probably will be using an account called Sales Returns & Allowances or something similar. While the return does reduce your sales number, most companies are going to want to keep track of their returns and therefore separate it into another account. Sales Returns is a contra revenue account, that is, a negative revenue. Since revenues are credits, this negative account will be a debit account. So you debit the Sales Returns.

That debit will offset the credit balance in the Sales account, which reduces the net sales. This will be done on the income statement later: you'll show gross sales, less any returns and less any cash discounts, to get net sales.

Depending on method, you may have a second entry to do. If you are doing periodic method, ignore this as the second entry isn't made. If you're doing perpetual (likely), then your original entry also included a debit to Cost of Goods Sold and a credit to Merchandise Inventory. For the cost. When it's returned, literally flip that entry over: debit the inventory and credit the COGS. You're trying to "undo" that original entry.