Goods which are returned to the business (entity) by its customers for whatever reason (defective or damaged goods, different goods dispatched by mistake, unsatisfactory goods, wrong type or size or color, incomplete dispatch/ consignment, etc.). A sales returns account is debited to reflect the fact that goods come in to the business. The debit to this account decreases sales revenue and as a result reduces income. In practice, an entity creates an allowance for sales returns whereby it attempts to figure out the amount of receivables to be written down or the amount of money (financial resources) that would be needed to compensate unsatisfied customers for the returned goods.
By nature, this account is a contra revenue account in which subtractions from gross revenue are added up and accumulated over time.
Sales returns are also known as returns inwards.
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