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when you estimate sales returns what is not true ?

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Understanding Sales Returns: What is NOT True?

When it comes to estimating sales returns, it’s crucial to understand the accounting processes involved. At Chegg.com, you can find a question that delves into what isn’t true when estimating sales returns. Let’s break down the key points:

The Main Question: What is NOT True When Estimating Sales Returns?

When you estimate sales returns, the following statements are evaluated:

– **Debit Estimated Returns Inventory**
– **Credit Cost of Goods Sold Debit**
– **Debit Sales Revenue**
– **Debit Refunds Payable**

From the provided information, it’s clear that the statement **”Debit Sales Revenue”** is not true. Understanding this distinction is essential for accurate accounting practices.

What Do FOB (Free on Board) Terms Mean?

Understanding FOB terms is also crucial. Let’s clarify some common misconceptions:

– **FOB stands for Free on Business**: This is incorrect.
– **FOB destination means the buyer pays for the freight**: This is correct.
– **FOB shipping point means that the seller pays the freight**: This is correct.

Handling Transportation Costs

When accounting for transportation costs that you personally pay out, the correct entry should be:

– **Debit Transportation-in-transit (if the goods are in transit)**
– **Debit Expense (if the goods are delivered)**

If none of the given choices are correct, it’s important to review the context and specific accounting principles applicable to your situation.

Reasons for Sales Returns

Carbon Collective highlights that sales returns do not typically include damage done to merchandise through wrongful use by the consumer. For instance, if a customer damages a laptop after buying it, they won’t be able to return it for a refund.

Other reasons for sales returns might include defects, wrong size/fit, or incorrect color, as mentioned by HubSpot and Study.com.

Accounting for Sales Returns

Accounting for sales returns involves reversing the initial sale transaction. For example, if goods were sold on credit, the receivable amount must be reversed. Similarly, if the sale was made for cash, a payable must be recognized to acknowledge the customer’s refund.

Practical Implications

Understanding how to adjust journal entries for estimated sales returns is vital. This involves initially recording the expected returns in the accounting journal and adjusting accounts receivable or cash entries accordingly.

Conclusion

Accurate accounting for sales returns ensures compliance with financial standards and provides a clear picture of your company’s financial health. Missteps in estimating sales returns can lead to inaccuracies that affect the bottom line. For further insights and examples, you can refer to educational resources such as HubSpot’s articles and Study.com’s detailed lessons.

By grasping these concepts, you’ll be better equipped to handle sales returns and allowances, ensuring your business operates efficiently.

Stay tuned for more insights on accounting best practices!

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This blog post aims to clarify what is not true when estimating sales returns and touches on related concepts to provide a comprehensive understanding for blog readers.