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2010-09-15 Credits to Revenue Refunds and Rebates Questions

2010-09-15 Credits to Revenue Refunds and Rebates Questions...

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Unformatted text preview: 2010-09-16 Credits to Revenue Refunds and Rebates Questions.doc How do you handle refunds and rebates.... are they a debit to revenue and a credit to cash (if cash was returned)? Could rebates be a contra account to revenue or would they be an expense? Is there such thing as a contra account to refunds or do you only find contra accounts with assets? What economic events would cause credits to cash that are not correcting or closing activities? In the situation where a company refunds a deposit to a customer (i.e. we know the $ will have to be refunded at some point in the future unless the customer did not comply with an agreement) the JE would be: Customer Deposts (a liability acct) XXX Cash XXX The account Customer Deposits is a liability account you set up when the customer initially paid the deposit, e.g. a cable TV company that requires a customer deposit on a cable box. Once the contract is ended the cable TV company knows they will have to refund the deposit to the customer; hence the need for the liability account. We will study other contra accounts later in the course; there are contra-revenue accounts and contra-liability accounts and we will see their effect on the I/S and B/S in later chapters. Finally, anytime you pay out cash would cause a credit to cash...e.g buying a computer would necessitate the following entry: Computer-Office Equipment Cash Hope this helps, Ira XXX XXX September 28, 2010 //home/vdimitrov/25081/80b6c972be2fb50a9ba16a921aebef53b762d1a0.doc ...
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