Sales Accounting - Recording Sales Returns and Allowances

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When a seller grants a return or an allowance, Sales Returns and Allowances is debited, and Accounts Receivable is credited. A buyer of goods can only take a cash discount on the goods that are actually kept (cash discounts do not apply to freight either). Example: A seller receives a debit memorandum for $70 of goods that were not ordered by ABC company. If the return is granted, the following entry is necessary.

Debit Sales Returns & Allowances $70

Credit Accounts Receivable ABC company $70