VCE Accounting Unit

1. 15.3
SALES RETURNS

2. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
• Example: on 12 August Elsternwick Electricals sold 4 light fittings for
$80 each plus GST of $8 each to Southern Primary School. The light
fittings cost the firm $40 each.
15.3 SALES RETURNS
Supplier
Wholesale
Electricals
Business
Elsternwick
Electricals
Customer
Southern Primary
School
$320 + $32 GST
Sale: 4 units x $80 = $320
Cost: 4 units x $40 = $160
+ GST $32 = $352

3. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
Debtors Control [A]
31/8 Sales/GST Clearing 352
Debtor – Southern Primary School [A]
12/8 Sales/GST Clearing 352
Sales [R]
31/8 Debtors Control 320
GST Clearing [L]
31/8 Debtors Control 32
Cost of Sales [E]
31/8 Stock Control 160
Stock Control [A]
31/8 Cost of Sales 160
Debtors Control [A]
31/8 Sales/GST Clearing 352
Debtor – Southern Primary School [A]
12/8 Sales/GST Clearing 352
Sales [R]
31/8 Debtors Control 320
GST Clearing [L]
31/8 Debtors Control 32
Cost of Sales [E]
31/8 Stock Control 160
Stock Control [A]
31/8 Cost of Sales 160
15.3 SALES RETURNS

4. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
• On 25 August, Southern Primary School (a Debtor) returned the light
fittings to Elsternwick Electrics because they were the wrong size.
• Elsternwick Electrics issued Credit Note 9.
•
Purchase Return
Business returns
stock to the
supplier
Sales Return
Customer returns
stock to the
business
Supplier
Wholesale
Electricals
Business
Elsternwick
Electricals
Customer
Southern Primary
School
$320 + $32 GST
15.3 SALES RETURNS

5. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
Debtors Control [A]
31/8 Sales/GST Clearing 352 31/8 Sales Returns/GST Clearing 352
Debtor – Southern Primary School [A]
12/8 Sales/GST Clearing 352 25/8 Sales Returns/GST Clearing 352
Sales [R]
31/8 Debtors Control 320
GST Clearing [L]
31/8 Debtors Control 32 31/8 Debtors Control 32
Sales Returns [-R]
31/8 Debtors Control 320
Cost of Sales [E]
31/8 Stock Control 160 31/8 Stock Control 160
Stock Control [A]
31/8 Cost of Sales 160 31/8 Cost of Sales 160
Debtors Control [A]
31/8 Sales/GST Clearing 352 31/8 Sales Returns/GST Clearing 352
Debtor – Southern Primary School [A]
12/8 Sales/GST Clearing 352 25/8 Sales Returns/GST Clearing 352
Sales Returns [-R]
31/8 Debtors Control 320
Sales [R]
31/8 Debtors Control 320 31/8 Debtors Control 320
Sales [R]
31/8 Debtors Control 320 31/8 Debtors Control 320
GST Clearing [L]
31/8 Debtors Control 32 31/8 Debtors Control 32
Cost of Sales [E]
31/8 Stock Control 160 31/8 Stock Control 160
Stock Control [A]
31/8 Cost of Sales 160 31/8 Cost of Sales 160
15.3 SALES RETURNS

6. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
General Journal
Date Details
General Ledger Subsidiary Ledger
Debit Credit Debit Credit
24 Jan Sales Returns [-R] 320
GST Clearing [L] 32
Debtors Control [A] 352
Debtor-Subsidiary Ledger [A] 352
Stock Control 160
Cost of Sales 160
Debtors Control [A]
31/8 Sales/GST Clearing 352 31/8 Sales Returns/GST Clearing 352
Debtor – Southern Primary School [A]
12/8 Sales/GST Clearing 352 25/8 Sales Returns/GST Clearing 352
Sales Returns [-R]
31/8 Debtors Control 320
GST Clearing [L]
31/8 Debtors Control 32 31/8 Debtors Control 32
15.3 SALES RETURNS
General Journal
Date Details
General Ledger Subsidiary Ledger
Debit Credit Debit Credit
25 Aug Sales Returns [-R] 320
GST Clearing [L] 32
Debtors Control [A] 352
Debtor-Subsidiary Ledger [A] 352
Stock Control 160
Cost of Sales 160
General Journal
Date Details
General Ledger Subsidiary Ledger
Debit Credit Debit Credit
25 Aug Sales Returns [-R] 320
GST Clearing [L] 32
Debtors Control [A] 352
Debtor-Subsidiary Ledger [A] 352
Stock Control 160
Cost of Sales 160
Sales Returns [-R]
31/8 Debtors Control 320
General Journal
Date Details
General Ledger Subsidiary Ledger
Debit Credit Debit Credit
25 Aug Sales Returns [-R] 320
GST Clearing [L] 32
Debtors Control [A] 352
Debtor-Subsidiary Ledger [A] 352
Stock Control 160
Cost of Sales 160
GST Clearing [L]
31/8 Debtors Control 32 31/8 Debtors Control 32
General Journal
Date Details
General Ledger Subsidiary Ledger
Debit Credit Debit Credit
25 Aug Sales Returns [-R] 320
GST Clearing [L] 32
Debtors Control [A] 352
Debtor-Subsidiary Ledger [A] 352
Stock Control 160
Cost of Sales 160
Debtors Control [A]
31/8 Sales/GST Clearing 352 31/8 Sales Returns/GST Clearing 352
General Journal
Date Details
General Ledger Subsidiary Ledger
Debit Credit Debit Credit
25 Aug Sales Returns [-R] 320
GST Clearing [L] 32
Debtors Control [A] 352
Debtor-Subsidiary Ledger [A] 352
Stock Control 160
Cost of Sales 160
Debtor – Southern Primary School [A]
12/8 Sales/GST Clearing 352 25/8 Sales Returns/GST Clearing 352
Cost of Sales [E]
31/8 Stock Control 160 31/8 Stock Control 160
Stock Control [A]
31/8 Cost of Sales 160 31/8 Cost of Sales 160
General Journal
Date Details
General Ledger Subsidiary Ledger
Debit Credit Debit Credit
25 Aug Sales Returns [-R] 320
GST Clearing [L] 32
Debtors Control [A] 352
Debtor-Subsidiary Ledger [A] 352
Stock Control 160
Cost of Sales 160
Stock Control [A]
31/8 Cost of Sales 160 31/8 Cost of Sales 160
General Journal
Date Details
General Ledger Subsidiary Ledger
Debit Credit Debit Credit
25 Aug Sales Returns [-R] 320
GST Clearing [L] 32
Debtors Control [A] 352
Debtor-Subsidiary Ledger [A] 352
Stock Control 160
Cost of Sales 160
Cost of Sales [E]
31/8 Stock Control 160 31/8 Stock Control 160

7. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
General Journal
Date Details
General Ledger Subsidiary Ledger
Debit Credit Debit Credit
25 Aug Sales Returns [-R] 320
GST Clearing [L] 32
Debtors Control [A] 352
Debtor-Subsidiary Ledger [A] 352
Stock Control 160
Cost of Sales 160
Return of 4 light fittings due to the wrong
size (Credit Note 9)
General Journal
Date Details
General Ledger Subsidiary Ledger
Debit Credit Debit Credit
25 Aug Sales Returns [-R] 320
GST Clearing [L] 32
Debtors Control [A] 352
Debtor-Subsidiary Ledger [A] 352
Stock Control 160
Cost of Sales 160
Return of 4 light fittings due to the wrong
size (Credit Note 9)
15.3 SALES RETURNS
Narration:
• Type of unit (e.g. “lights”)
• No. units lost (e.g. 4)
• Reason for return (e.g. “wrong size”)
• Credit Note #

8. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
Income Statement
Revenue $ $
Sales 100000
less Sales Returns 5000 95000
less Cost of Goods Sold
Cost of sales 20000
Buying expenses 5000 25000
Gross Profit 70000
less Other Expenses
Rent 12000
Wages 38000 50000
Net Profit 20000
Income Statement
Revenue $ $
Sales 100000
less Sales Returns 5000 95000
less Cost of Goods Sold
Cost of sales 20000
Buying expenses 5000 25000
Gross Profit 70000
less Other Expenses
Rent 12000
Wages 38000 50000
Net Profit 20000
• Where are Sales Returns reported in the Income Statement?
This figure is called
Net Sales
15.3 SALES RETURNS

9. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
• Where are Sales Returns
reported in the Income
Statement?
Revenue
Cost of Goods Sold-
Stock Gain or Stock Loss+ or -
Other Revenue+
Adjusted Gross Profit=
Other Expenses-
Net Profit=
Gross Profit=
Sales Returns-
15.3 SALES RETURNS

10. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
Sales [R]
Debtors Control 100000
• Why is an account called Sales Returns created? Why isn’t a debit just
made to Sales?
 Business A: records all sales
returns in the Sales [R] ledger
• So the Income Statement will
look like…
Income Statement
Revenue $ $
Sales 95000
 Business B: records all sales
returns in the Sales Returns [-R]
ledger
 So the Income Statement will
look like…
Sales [R]
Debtors Control 5000 Debtors Control 100000
Sales [R]
Debtors Control 100000
Sales Returns [-R]
Debtors Control 5000
Income Statement
Revenue $ $
Sales 100000
less Sales Returns 5000 95000
15.3 SALES RETURNS
Income Statement
Revenue $ $
Sales 95000 Income Statement
Revenue $ $
Sales 100000
less Sales Returns 5000 95000

11. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
• What is the benefit to the business in using a Sales Return [-R] ledger?
Income Statement
Revenue $ $
Sales 95000
Income Statement
Revenue $ $
Sales 100000
less Sales Returns 5000 95000
Vs
Sales returns put in Sales ledger… Sales returns put in Sales Returns ledger…
• Understandability: the level of Sales Returns can be clearly seen in the Income
Statement (not buried in the ledger)
• Relevance: the firm can make decisions if Sales Returns are too high, e.g.
• Change of supplier – is the supplier providing faulty goods?
• Stock a different product – is the good itself of an inferior quality?
• Change delivery methods – are goods being damaged during delivery?
15.3 SALES RETURNS

12. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
TASK
In-class Homework
Ex15.2 X
SQ4 X
SQ6 X
Ex15.4 X
Ex15.5 X
Ex15.6 X
Ex15.7 X
Ex15.8 X
Ex15.9 X