05-30-2009, 01:56 AM
Idea is simple..
If there's an arrangement where an item could be returned after it's sale, depending upon the value of that item, a provision of sorts will be made to account for any, sales return made after it's sale.
Usually, a seller will record a sale as it is.. For Example
DR Cash
CR Sales of Goods
but in case where return is made possible, he'll make Allowance for Sales returns based on %age of total sales for a year at yearend for next year based upon normal Return trends upon sales volume and ect.
DR PnL
CR Sales Allowance
Any amount that remains outstanding even after the provision will be adjusted through that year's PNL and provision will be adjusted accordingly.
When a customer pledges goods with bank, it means that he is securing those goods as collateral to bank for advances. If there is such a case, I believe there won't be any change in entries from seller's point of view. Because, as long as you have made the sale in on cash basis and not credit basis, it wouldn't matter. However if the sales was made on credit basis, Bank should be notified in that regards. That the customer concerned has yet to pay you for the goods bank has in pledge. Ofcourse this works differently for L/Cs and Export credits. But still you get the point ^_^
If there's an arrangement where an item could be returned after it's sale, depending upon the value of that item, a provision of sorts will be made to account for any, sales return made after it's sale.
Usually, a seller will record a sale as it is.. For Example
DR Cash
CR Sales of Goods
but in case where return is made possible, he'll make Allowance for Sales returns based on %age of total sales for a year at yearend for next year based upon normal Return trends upon sales volume and ect.
DR PnL
CR Sales Allowance
Any amount that remains outstanding even after the provision will be adjusted through that year's PNL and provision will be adjusted accordingly.
When a customer pledges goods with bank, it means that he is securing those goods as collateral to bank for advances. If there is such a case, I believe there won't be any change in entries from seller's point of view. Because, as long as you have made the sale in on cash basis and not credit basis, it wouldn't matter. However if the sales was made on credit basis, Bank should be notified in that regards. That the customer concerned has yet to pay you for the goods bank has in pledge. Ofcourse this works differently for L/Cs and Export credits. But still you get the point ^_^
