I am just a bit confused on this. Here is the problem.

Damaged goods totaling $300 are returned. The scrap value of these goods is $150

Now looking back in the book, it says: If goods are returned because they are damaged the entries should be made for their estimated value. So far I have this, but it doesn't look right. It seems that I am still $150 off somewhere.


Sales Returns and Allowances DR 300
A/R (to record credit to buyer) CR 300

Merchandise Inventory DR 150
COGS (cost of damaged goods) CR 150

Is this right, or am I missing something? Could someone explain this a little better for me?

Quote:

---

Originally Posted by wurmlord

I am just a bit confused on this. Here is the problem.

Damaged goods totaling $300 are returned. The scrap value of these goods is $150

Now looking back in the book, it says: If goods are returned because they are damaged the entries should be made for their estimated value. So far I have this, but it doesn't look right. It seems that I am still $150 off somewhere.


Sales Returns and Allowances DR 300
A/R (to record credit to buyer) CR 300

Merchandise Inventory DR 150
COGS (cost of damaged goods) CR 150

Is this right, or am I missing something? Could someone explain this a little better for me?

---

If you are recording a loss, it needs to either be the cost price of your loss as a write off, in which case you would need to make a journal entry to explain away the other 150.00 to balance the 300.00 entered on the sales invoice. If you do not do this, then you will be 150.00 and out of balance.

It could be journalised as the difference between the retail cost and the wholesale cost on returned goods.

Okay, I think I understand it now. The sales return and CR to A/R were for the selling price of the items, and the Inventory and COGS entry were at the original price of the items, not the selling price. So if $3000 of items were sold for $6000 with terms 2/10 n/30, damaged goods are returned with a selling price of $300, scrap value is $150, then payment is received it would look like the figure below? I think what was throwing me off was that scrap value. I guess I thought the damaged items were returned then sold for scrap.

Thanks for the help.

http://img.photobucket.com/albums/v6...d/Exercise.jpg