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    Sales return is debited in the books of accounts. It is a contra revenue account. To make the concept simpler, I would like to introduce you to the Modern rule of accounting, which is designed to explain the debit and credit relationship. Rule of accounting Modern rules The modern rule is as followsRead more

    Sales return is debited in the books of accounts. It is a contra revenue account.

    To make the concept simpler, I would like to introduce you to the Modern rule of accounting, which is designed to explain the debit and credit relationship.

    Rule of accounting

    Modern rules

    The modern rule is as follows

    Type of accountDebitCredit
    Revenue accountDecreaseIncrease

    When a sale is made it is credited in the books of account as it leads to an increase in the revenue, however, when the goods are returned by the customer it has a debit effect because it leads to a decrease in the revenue.

    According to the modern rule of accounting, the sales return account has been debited because it leads to a fall in the revenue of the business. In case the sales were made on a credit basis the expected accounts receivable should be credited by the amount of sales returned as no amount shall be received.  However, if the sales were made on a cash basis then an accounts payable should be issued to acknowledge the liability of repaying the customer for the purchase.

    Example:

    The credit sales of 1,00,000 were returned by Mr. K to ABC Ltd. as the goods were defective. The journal entry in the books of ABC Ltd. is as follows

    Sales return a/cDebit1,00,000Debit the decrease in revenue
    To Mr. K’s a/cCredit1,00,000Credit the decrease in asset

    (being goods returned by the customer)

    Hope this helps.

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