In some cases it may be so that you’ve decided to give your clients the right to return either defected or not needed goods or even more regardless of the reason, they have the right to return the goods without questions asked. It’s not only the right to return goods, but also claim what they paid or not pay what they owe. 

First thing first obviously, your contracts must clearly state which goods can be returned, i.e. from the date of the sale there’s a specified period during which goods can be returned, the goods need to be in original packaging etc. This is something you’re entitled to specify most likely, depending always on your local legislation obviously.

However, in your accounting those sales returns must get careful consideration.

If it’s a situation where you know there will be a few returns and the level of them can be reliable estimated and measured, i.e. usually a 0.5% of a month’s sale for an example, you’d account for revenue in 99.5% and for the 0.5% you recognize a provision in the accounts.

However, if you are uncertain of the level on returns or there’s high level of returns, you account for the revenue in full, but on the other hand you also account for a provision against the sales revenue. This provision is now measured at the expected returns amount, based on historical records, previous returns and what other information is available and relevant.