Smith Company is a manufacturer of medical devices and has an excellent quality control department, thus defective product returns are rare. In 2018, Smith reported sales of $276,344,000. The company did, however, have two returns in 2018 related to the wrong product model being shipped. Smith’s 2018 journal entry to record a $37,500 return from a customer (Foxtrot Medical) would be:

Journal to be Processed to Record the Return

Revenue $37,500 (debit)

Cash or Trade Receivable $37,500 (credit)

Explanation:

Journal to be Processed to Record the Sale

Cash or Trade Receivable $276,344,000 (debit)

Revenue $276,344,000 (credit)

Journal to be Processed to Record the Return

Revenue $37,500 (debit)

Cash or Trade Receivable $37,500 (credit)

Note : We de-recognise the Revenue and also de-recognise the Cash (Refund) or de-recognised a Trade Receivable if the Sale was on Account.

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