Working on a problem in which I've already sold a certain amount of pool tables and ping pong tables on account. The customer receives the items and notices a pool table is slightly damaged. I grant them an allowance at a list price of $500 and they keep the pool table.

Originally, I debited Sales on Account and credited Cash, also debited Inventory and credited Cost of Goods Sold.

I'm confused on what to do with the damaged inventory entry though, here are the options I could think of:

Option 1
Dr Cost of Goods Sold
Cr Cash

Option 2
Dr Inventory
Cr Accounts Recievable

Or should there be two entries? I'm just confused because nothing seems to be adding up. Help is much appreciated!