What is the proper treatment for a sales return to a customer?

• A. Dr Sales Returns; Cr Trade Debtors.
• B. Dr Trade Debtors; Cr Cash/Bank.
• C. Cr Sales Returns; Dr Trade Debtors.
• D. Dr Cash/Bank; Cr Sales Returns.

Answer: (A)

When a customer returns goods that were sold on credit, you need to reverse part of the sale by reducing the revenue and cutting the amount owed by the customer. Sales Returns is a contra-revenue account, so debiting it increases its balance and lowers net sales. Trade Debtors represents amounts owed by customers; crediting it reduces the receivable. So the correct entry is to debit Sales Returns and Credit Trade Debtors. This keeps the books reflecting both the decline in revenue and the reduction in what the customer owes.

If a cash refund is given at the same time as the return, you’d also record a separate entry to reflect the cash payment (debit Cash/Bank and credit Sales Returns), but the basic treatment for a credit sale return is the debiting of Sales Returns and the crediting of Trade Debtors.