Among the most representative balance sheet of a company must surely be counted the “Sales revenue“, which includes the positive components of income attributable to sales transactions within the sphere of business management feature. In this guide, I’ll explain what to do if you are faced with events that make it necessary to adjust sales revenue previously recorded.

The adjustments of “Sales revenue” negative income components are able to operate a reduction of revenues sales already recognized in the accounts. From the point of view of financial reporting, such negative components of income must, as mentioned above, be deducted in revenues. Likewise, any credit notes linked to such adjustments shall be shown in the accounts of deduction of receivables. In the event that there is no credit to a particular customer, the credit notes must be presented in the liabilities side of the balance sheet as amounts due to customers.

Accounting rules, in relation to the matter, require that revenues from the sale of the sale of products, goods and / or services (related, therefore, to the core business) should be indicated in accordance with the principle accrual basis and net of returns, discounts, allowances, rebates and taxes associated with the sale. Discounts to which they refer accounting principles are, of course, those of a commercial nature (unconditional discounts indicated in the invoice or quantity discounts) and not the discounts of a financial nature. The latter, in fact, (such as discounts for cash payment or cash ready cash) are present in a stage subsequent to the sale of goods and services, and are therefore to be classified in the income statement under financial expenses.

accounting-adjustment

One last point that should be done before proceeding to the consideration of the various circumstances that may result in the recording of a deduction from revenues is as follows: the adjustments to revenues must be reported to revenues for a given year, adjustments related to revenues from previous years must be, however, considered extraordinary items and classified as extraordinary income or charges (this in order to preserve the principle of matching costs and revenues).

The main reasons for the adjustments are as follows:

1. returns (connected to the sale of defective goods, damaged goods or not, however, conform to the order, or for any other failure of a contractual nature)
2. errors in billing
3. rebates, discounts and rebates;
4. awards.
Consider, for each of the case studies above shows the records that you need to register in accounting.

Sales returns

During the execution of a contract of sale may happen that goods, materials or products delivered would differ, qualitative or quantitative, on the terms agreed in the contract. In such circumstances, the customer may use the return of the products inconsistent with the object of billing and the seller shall proceed to issue a credit note to the customer the same. The accounting entries that you have to do is the following: in which the account of Return on sales should be classified in the income statement as an adjustment to value of production revenues. Alternatively, you can use that account instead of the account to be adjusted, or Goods / Products c / sales.