In June 2012 Company has supplied some goods to a customer on a sale on return basis. The value of the goods was Rs. 120,000. The company recorded this transaction as credit sale, and as a result of this transaction a profit of Rs. 30,000 was earned by the company. However, the customer returned all goods in fine condition in July 2012.
What will be the adjusting entry and how it will affect Income statement and balance sheet?

Assuming that the reporting period ended on 30 June, you basically have to reverse the entries that recorded the original sale so that it looks like it didn't happen in the first place.

This means that you need to adjust the sales figure and cost of sales figure in the income statement, and adjust the debtors figure and inventories figure in the balance sheet.