What accounts are affected by a sales return?

When a sales return occurs, several accounts are influenced to accurately reflect the return process in the accounting records.

The inventory account is affected because the returned goods are added back to inventory, increasing the stock available for sale. This is important for maintaining accurate records of inventory levels.

Cost of Goods Sold (COGS) is also impacted because when goods are returned, the expense associated with those goods should be adjusted. The return signifies that fewer goods were actually sold, necessitating a reduction in the total cost of goods sold.

The debtors account (or accounts receivable) is affected since the return typically results in a reduction of the amount owed by the customer. The return means that the customer no longer owes the business for the goods they returned, leading to a decrease in receivables.

Finally, the sales return account is specifically used to record the amount of sales that have been returned. It acts as a contra-revenue account, which ultimately reduces total sales revenue in the financial statements.

Together, these account adjustments ensure that the financial statements accurately reflect the business's current situation regarding sales and inventory following the return of goods.