You can make a note in the memo field to tie it back into the original invoice/sales receipt but since the sale and subsequent discount may happen in different periods (sale in December, credit in January), they should be recorded questions. When you issue the credit memo for XYZ Trade In, that debited (reduced) your sales income and you now have the credit to apply to a future invoice or you can issue payment to your customer. "3) In the event the XYZ Trade In I would follow the same process, debit sales discount, XYZ Trade In, increase/credit cost to the original sale of the XYZ?" This was also accounted for in #1. IMO, this is a sales discount since the full cost of Refurb XYZ will be capitalized into inventory when you receive the item and bill from the vendor. You can't give a sales discount and increase your inventory cost of Refurb XYZ - it is one or the other. You reduced your sale income (debit) by the amount of the discount with a corresponding reduction (credit) to A/R, and then received Refurb XYZ into inventory at the cost the vendor charged for the refurb. Meaning, I would need to somehow debit sales discount and increase the cost of that particular Refurb XYZ by the trade in value?" This was fully accounted for in #1. "2) But I need to now apply the cost of the credit that was issued to the customer to that particular Refurb XYZ so that the cost is sitting in the correct place. You can then apply the credit to future invoices or issue payment to your customer for the credit. That will reduce your income by the amount of the credit. Use that new item to issue credit memo to customer and when I receive back the Refurb XYZ I just inventory it with a cost reflecting the refurbishment?" That sounds like a good process to me. "1) should I create a non inventory item called XYZ Trade In and set the expense account to sales discount. Meaning, I would need to somehow debit sales discount and increase the cost of that particular Refurb XYZ by the trade in value? In the event the XYZ Trade In I would follow the same process, debit sales discount, XYZ Trade In, increase/credit cost to the original sale of the questions. Use that new item to issue credit memo to customer and when I receive back the Refurb XYZ I just inventory it with a cost reflecting the refurbishment? But I need to now apply the cost of the credit that was issued to the customer to that particular Refurb XYZ so that the cost is sitting in the correct place. So my question is should I create a non inventory item called XYZ Trade In and set the expense account to sales discount. Once I receive the item back from my vendor I then place it into inventory as Refurb XYZ. If the item can not be refurbished it is binned. If the item can be refurbished I then may or may not refund (case by case basis) the agreed upon value for the trade in. Once I have received back the trade I send it to a vendor who determines if the item can be refurbished. If Music World discovers $100 worth of defective merchandise in the shipment from Music Suppliers, Inc., Music World prepares a debit memorandum, returns the merchandise, and makes a journal entry that decreases (debits) accounts payable for $100 and that increases (credits) purchases returns and allowances for $100.įor reference purposes, the journal entry's description may include the debit memorandum number and the seller's invoice number.I have an inventory item, XYZ, that when I sell I often receive back a trade in shortly after. On the income statement, the purchases returns and allowances account is subtracted from purchases. Contra‐expense accounts normally have credit balances. The purchaser uses the debit memorandum to inform the seller about the return and to prepare a journal entry that decreases (debits) accounts payable and increases (credits) an account named purchases returns and allowances, which is a contra‐expense account. When a purchaser receives defective, damaged, or otherwise undesirable merchandise, the purchaser prepares a debit memorandum that identifies the items in question and the cost of those items. Inventory Errors and Financial Statements.Inventory Systems: Perpetual or Periodic.Recording Notes Receivable Transactions.Subsidiary Ledgers and Special Journals.The Work Sheet When Closing Entries Update Inventory.Closing Entries for a Merchandising Company.Inventory Adjustments on the Work Sheet.Financial Statements for a Merchandising Company.The Cost of Goods Available for Sale and the Cost of Goods Sold.Net Purchases and the Cost of Goods Purchased. Generally Accepted Accounting Principles.
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