Credit purchases, sales and settlement

On 8 March, separate the effect of selling from the effect of delivering stock. The sales price is 12 × 80 = 960. Given the case's assumption that the sales obligation has been satisfied, debit accounts receivable 960 and credit sales revenue 960. The receivable is a claim against the customer, not cash available to pay this week's wages. The units delivered cost 12 × 50 = 600. Record another entry: debit cost of sales 600 and credit inventory 600. There are now 28 calculators costing 1,400. Gross profit on the transaction is 960 − 600 = 360 before other costs. If revenue is posted but cost of sales is omitted, both profit and inventory are overstated by 600. A trial balance may still agree.

On 20 March, inspect the bank advice and the allocation of the receipt to the customer's invoice. Debit cash 600 and credit accounts receivable 600. The receivable still due is 960 − 600 = 360. Do not record another 600 of revenue: the performance that created revenue preceded collection. A later 360 payment would clear the receivable without new revenue. The sequence gives three figures that can be independently checked: sales invoice 960, receipt 600, open balance 360. A due date is not itself the revenue recognition date; applying IFRS 15 to a more complex contract requires the separate analysis in the revenue lesson.

Also follow the supplier side. Suppose Madar pays 1,200 of the purchase invoice on 25 March. Debit accounts payable 1,200 and credit cash 1,200. The supplier remains owed 800. Payment does not add another inventory cost or cost of sales. Match the supplier statement, invoice, and allocation; a transfer might cover more than one invoice. A useful schedule lists document number, receipt date, due date, invoice amount, payments, and open balance. Blindly allocating a transfer to the oldest invoice can create a clean-looking but wrong record.

Here is a second worked case. A customer orders five calculators for 400 and pays a 100 deposit on 29 March. The goods will be delivered in April and there is no other March performance. Under these facts, cash increases by 100 and the entity has an obligation to deliver or refund: debit cash 100, credit contract liability or customer deposits 100. The sale has not yet been recorded. On April delivery, analyse the contract terms, release the liability and record the remaining receivable or cash as appropriate, and post the cost of the goods. If the deposit is labelled non-refundable or includes a distinct service, its name alone does not settle revenue timing. Refer the actual contract for review. IFRS 15's contract, performance obligation, and satisfaction sections support the principle; the standard title alone does not.

A return requires more than issuing a credit note and reducing sales revenue; examine what happened to the goods. Continue the twelve-calculator case. Suppose the customer returns two on 22 March after their earlier acceptance, the contract and returns policy permit it, and inspection finds both fit for resale at their original cost of 50 each, with no transport or refurbishment cost. Their sales value is 2×80 = 160. Once the credit note is approved, debit sales returns or reduce revenue by 160 and credit receivables by 160. The customer's balance after the 600 collection falls from 360 to 200. Separately debit inventory 100 and credit cost of sales 100. Net revenue on this transaction is 960−160 = 800, net cost of sales 600−100 = 500, and gross profit 300. The item card moves from 28 units after sale to 30 after the return, at total cost 1,500. Three checks now agree: customer claim 200, stock quantity 30, and retained sales margin 300.

If the two returned units are unusable, adding 100 of saleable inventory would overstate assets. Separate the price refund from measurement of any recovered goods; obtain the condition report and write-down policy before posting the asset. If the credit note is a price concession while the customer keeps the goods, no two units enter stock and the original cost-of-sales entry stays. The label “return” in an email cannot tell us whether goods physically came back. Receiving note, original invoice number, and credit-note authority can. At period end, examine returns arriving after the report date: some may reveal a right or condition that existed at sale, while others reflect a later event. Do not shift them across periods to improve sales. Refer an ambiguous fact pattern to the revenue reviewer instead of reducing it to an automatic journal rule.