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I believe that is a merchandise.
yes it is
It is NOT a raw material, but a merchandise, as I understand.
Will you be incurring any additional replacement costs ?
Fine, as I now understand, you will just give them 150 damaged pieces and they will give you 150 pieces back, undamaged and new.
This is non financial transaction and therefore NO journal entry would be required.
but I am not getting the inventory back until next month
and I have already sent the damaged goods back
even then, no financial transaction is done. So, as I said, This is non financial transaction and therefore NO journal entry would be required.
so arent I overstating my inventory?
No, because, getting it exchanged is an administrative thing and not an accounting stuff. You would have been overstating it in case of "Purchase Returns" where in you return it and they would have paid you back your money. OR journal entry would have been required if you would have incurred any higher replacement costs. This would have been charged to COGS.
In this case, this being a non financial transaction and therefore NO journal entry would be required.
I dont understand....when I do my inventory at the end of this month, the merchandise is not there
I have to show the deduction somewhere
this month until I receive the new items next month
I understand. If you are using Periodic system of accounting, no entry is required.
Under Perpetual inventory, you will DEBIT Cost of sales and Credit Inventory by that much number.
Just for self help, this is an excellent resource.
Ok my first thought was to debit COGS
but why would it be my expense?
these are items that will be returned to be
It would be to temporarily reduce the Inventory balance as the units have been sent.. You will credit it back once you receive next month.
so, you will tally your current month.
and not overstate, as you say.
so for this month it should be considered my expense/
yes, that is right, Debit COGS, / Cost of sales today, reduce the balance for this month. Credit it later next month again to bring the Inventory to the same level. You are just temporarily reducing it. This is a Contra Accounting entries.
This is the most proper method. Had you have returned permanently with no intention to replace, the normal purchase returns entries would have been done.
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Hello and thank you for your question.
Upon returning the inventory, you would credit inventory and debit a receivable for the balance to be received in a future period. Running this through cost of sales will impact net income and cause a misstatement in your financials.
Keep in mind that tax basis accounting and generally accepted accounting principles are different. If you are a cash basis taxpayer and you have paid for the inventory, then you could probably leave the amount in cost of sales (note that true cash basis inventory accounting is generally not accepted for tax purposes, so this is pending your specifics).
I hope this is helpful.