[Michael]

Just a quick question.

How do you know which period to record credit memos?

For example, lets say in December I received an invoice for a bunch widgets that I bought in 2012. However, some of the widgets were defective. So I called the manufacturer and they agreed to issue a credit memo which I received in January 2013.

So, do I record that credit memo in 2012 or 2013?

AUD: 72, 68
BEC: 64
REG: TBD
FAR: TBD

Using Roger CPA Review

[acamp]

Well lets see what's going on,

So you buy $1,000 worth of widgets, FOB Destination (aka, not yours until they show up).

When they get there you inspect 30% of them as defective, if you have RMA approval, you don't have to book them into inventory, that is, you contacted the manufacturer who provides you an RMA number and thus you have evidence of their acceptance of the return.

So you would book

Dr.Inventory 700

Cr.A/P 700

(maybe an in and out entry, ie: bring in 1,000 of inventory and immediately remove 300 of it for RMA)

Without any return approval or anything of that nature it seems that you would have to book the full amount (unless you can argue that you are within your contractual right to return defective widgets)

Dr. Inventory 1000

Cr. A/P 1000

Ah but if you book the full 1000 into inventory, 300 of that is defective!

Dr. Scrap/Defective Inventory Expense 300

Cr. Inventory 300

But what if you just refuse the entire shipment?! Well, we would have to look at the terms of the contract. If no such right of return exists, and no approval was granted, you still have a $1000 liability and NO inventory! LOL

In summation, it depends.

Ninja + Wiley Test Bank: [FAR - 81] [REG - 76] [BEC - 88] [AUD - 73](doh!)

Becker Videos: [AUD - 82]

California CPA

[acamp]

Well lets see what's going on,

So you buy $1,000 worth of widgets, FOB Destination (aka, not yours until they show up).

When they get there you inspect 30% of them as defective, if you have RMA approval, you don't have to book them into inventory, that is, you contacted the manufacturer who provides you an RMA number and thus you have evidence of their acceptance of the return.

So you would book

Dr.Inventory 700

Cr.A/P 700

(maybe an in and out entry, ie: bring in 1,000 of inventory and immediately remove 300 of it for RMA)

Without any return approval or anything of that nature it seems that you would have to book the full amount (unless you can argue that you are within your contractual right to return defective widgets)

Dr. Inventory 1000

Cr. A/P 1000

Ah but if you book the full 1000 into inventory, 300 of that is defective!

Dr. Scrap/Defective Inventory Expense 300

Cr. Inventory 300

But what if you just refuse the entire shipment?! Well, we would have to look at the terms of the contract. If no such right of return exists, and no approval was granted, you still have a $1000 liability and NO inventory! LOL

In summation, it depends.

Ninja + Wiley Test Bank: [FAR - 81] [REG - 76] [BEC - 88] [AUD - 73](doh!)

Becker Videos: [AUD - 82]

California CPA

[Author]

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