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Prior Year Adjustment
02-24-2009, 07:46 PM
Post: #1
Prior Year Adjustment
A simple problem !

We made sale in December 2008. Payment was received in the same month and year was closed.

In Jan 09, the merchandise sold in dec 08 was returned. Now how that should be treated?
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02-24-2009, 08:52 PM
Post: #2
 
Dear,

This is a non-adjusting event in the light of IAS-10 and will be accounted for in the year 2009 as routine transaction of sales return.

Please note that if you are a company, you cannot account for anything as prior year adjustment. You will have to follow IFRSs (IAS-8) or Standard for medium entities for change in policies, estimates or prior period errors. However, sales return does not fall in any of these three adjustments. This is altogether a new event and transaction, regardless of its connectivity with previous acounting period.

It means this will not affect the year 2008 accounts although such sales returns is related to the sales made during the year 2008.

You can debit the sales account of the year 2009 in your GL and give the credit to the party's account. Whether or not you will refund the full amount depends upon negotiation, after which, you can release or adjust the amount in Party's acount.

If you don't have to refund anything after conclusion of negotiation, you can adjust the amount outstanding in party's account to other income account as a forfeiture.

In other cases you can clear this account by paying through cheque and crediting bank account or simply adjusting such amount against some subsequent sales, through journal voucher.

Regards,


KAMRAN.
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