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Difficulty: MediumSales Journal and Sales Returns Journal

On 12 May 2026, Babatunde Traders sold goods with a catalog list price of ₦200,000\text{₦}200,000 on credit to O. Musa, subject to a 15%15\% trade discount and a 5%5\% cash discount for settlement within 14 days. On 18 May 2026, O. Musa returned defective goods having a list price of ₦40,000\text{₦}40,000. What is the exact amount to be recorded in Babatunde Traders' Sales Returns Journal?

  1. ₦34,000\text{₦}34,000Answer
  2. B
    ₦40,000\text{₦}40,000
  3. C
    ₦32,300\text{₦}32,300
  4. D
    ₦170,000\text{₦}170,000

Answer

The correct figure to be recorded in the Sales Returns Journal is ₦34,000\text{₦}34,000.
When credit sales returns occur, the entry in the Sales Returns Journal (Returns Inward Journal) must reflect the list price minus any trade discount given at the time of sale. The trade discount on ₦40,000\text{₦}40,000 at 15%15\% is ₦6,000\text{₦}6,000, leaving a net return value of ₦34,000\text{₦}34,000. Cash discounts are strictly for prompt cash settlement and do not affect special journals.

Step-by-Step Solution

1
Calculate the trade discount applicable to the returned goods
Trade discount on returns = 15%×₦40,000=₦6,00015\% \times \text{₦}40,000 = \text{₦}6,000
Trade discounts granted on initial sales must also be deducted proportionally from returns.
2
Subtract the trade discount from the list price of returned goods
Net sales return amount = ₦40,000−₦6,000=₦34,000\text{₦}40,000 - \text{₦}6,000 = \text{₦}34,000
Special day books record transactions net of trade discounts.
3
Determine the treatment of cash discount
Cash discount (5%5\%) is ignored for the Sales Returns Journal entry
Cash discount is recorded only in the cash book when payment is actually received within the stipulated period.

Key Concept

Valuation of entries in the Sales Returns Journal net of trade discounts
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Topics

Sales Journal and Sales Returns Journal

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