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Purchase Return Exceed Inventory Value
08-24-2011, 08:07 PM
Post: #1
Purchase Return Exceed Inventory Value
Hi , using perpetual accounting

Could anyone tell how to solve this problem

assume a company make the following transaction

1-1-2010
purchase 1 item @ 100 $ (cash)

1-6-2010
purchase 10 item @ 10$ (cash)

1-9-2010
sale 10 item @ 30$ (cash)


Now ending inventory using (average weight method) will be 1 item @ 18.18

if we make the following transaction
1-1-2011
purchase return 1 item @ 100$ (cash)

this well make inventory has credit value (18.8 - 100) = -81.82 which can't be right !!

how should i record this

should i add the difference as other revenue, or credit the cost of good sold ?

Thank You
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09-04-2011, 06:10 AM
Post: #2
 
The scenario is very unrealistic. Prices of same items can not differentiate that much in a matter of weeks. One item was bought at $100 and just after five months the same item was brought at the rate of $1! The major difference will definitely result in a negative inventory value if the more expensive item is returned later.
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09-07-2011, 03:44 AM
Post: #3
 
[quote]<i>Originally posted by Dard</i>
<br />The scenario is very unrealistic. Prices of same items can not differentiate that much in a matter of weeks. One item was bought at $100 and just after five months the same item was brought at the rate of $1! The major difference will definitely result in a negative inventory value if the more expensive item is returned later.
[Simply cost of goods sold would be reduced automatically(iecredited).Trading profit or loss would be treated in cost of goods sold section not in other income.Thanks /quote]
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