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ACCA Applied Knowledge · Financial Accounting · Double-entry bookkeeping principles including the maintenance of accounting records

Lumen Co sold goods on credit for $3,000 to a customer, who then returned goods with a sales value of $450. Lumen records the return in the ledger. Which entry is correct?

Debit sales returns and credit trade receivables with $450. The return reduces net sales through a debit to the returns account and reduces the amount the customer owes through a credit to receivables. No cash is paid yet, so bank is not used.

  1. ADebit Sales returns $450; Credit Trade receivables $450Correct
  2. BDebit Trade receivables $450; Credit Sales returns $450
  3. CDebit Sales returns $450; Credit Bank $450
  4. DDebit Purchases returns $450; Credit Trade receivables $450

Explanation

Returns inwards reduce sales, so sales returns is debited. The customer owes less, so trade receivables is credited. No cash has moved, so bank is not involved, and purchases returns relates to goods sent back to suppliers.

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