Sue's Jewelry sold 25 necklaces for $25 each to a credit customer. The cost of the necklaces to Sue's Jewelry was $15 plus 13% HST. The invoice included HST at 13% and payment terms of 2/10, n/30. Five necklaces were returned prior to payment. The entry to record the return would include

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The return of 5 necklaces would result in a reduction in both sales revenue and accounts receivable. The cost of the necklaces returned would also be reduced, resulting in a decrease in the cost of goods sold. The amount of the return would be calculated as 5 necklaces x $25 = $125. This amount would be recorded as a debit to Sales Returns and Allowances to reduce sales revenue and a credit to Accounts Receivable to reduce the amount owed by the credit customer. There would be no impact on Sales Tax Payable as the HST charged would also be reduced by the return.

Sue's Jewelry Sold 25 Necklaces for $25 Each to a Credit