Discount Appliance Shops, Inc is a discount home appliance retailer who sells “scratch
and dent” products. As part of its strategy, so customers can ensure that they are
getting a workable product, the owner, Willy offers a 30-day money back guarantee.
Stadin, a customer came in and purchased a dishwasher. After one use, the unit broke
and flooded his kitchen. Willy gave Stadin a full cash refund. How should Willy account
for this sale?

Answer:

On the event of sales , it will be recorded as -

Cash account dr

To Sales account

(Being sales made to the customer )

At the time of recording refund of sales made

Case A ) When the company made provision for such 30 days money back guarntee refund entry would be -

Refund expense Dr  

To Cash

(Being expense in relation to refund recorded)

Provision for refund Dr

To refund expense

( Being refund expense written off against provision)

Case B ) When the company has not made any provision in respect of money bank guarntee , entry for refund will be -

Refund expense Dr

To Bank

(Being expense in relation to refund recorded)

Statement of Profit and loss Dr

To Refund expense

( Being refund expense written off in the statement of proft and loss)