How to Account for Sales Returns: Journal Entries and Practical Steps

Sales return accounting starts by verifying the original invoice, returned quantity, and product condition. Issue a credit note and determine whether to refund the customer or reduce their outstanding balance.

Typically, debit sales returns and credit cash or accounts receivable, adjusting sales tax where applicable. If the returned goods are resalable, restore inventory at cost and reverse the related cost of goods sold. For example, a return worth 1,000 with a cost of 600 requires reversing the sale and restoring eligible inventory. Try Cash Cloud for free to explore sales, returns, and inventory tools.