sales returns and allowance

Examples of sales returns and allowance in the following topics:

• Recording Sales

  • Net sales are gross sales minus sales returns, sales allowances, and sales discounts.
  • In bookkeeping, accounting, and finance, net sales are operating revenues earned by a company for selling its products or rendering its services.
  • Sales - Sales Return & Allowances - Sales Discount = Net sales
  • In double-entry bookkeeping, a sale of merchandise is recorded in the general journal as a debit to cash or accounts receivable and a credit to the sales account.
  • Net sales are gross sales minus sales returns, sales allowances, and sales discounts.

• Sales Forecast Input

  • Target volume, price, and contribution margin per unit are the key inputs to a sales forecast.
  • Net sales are gross sales minus sales returns, sales allowances, and sales discounts.
  • sales allowances are reductions in sales price for merchandise with minor defects, the allowance agreed upon after the customer has purchased the merchandise
  • This will often require them to revise sales targets as prices and costs change.
  • The purpose of profit-based sales target metrics is to ensure that marketing and sales objectives mesh with profit targets.

• Percentage Returns

  • There are two types of percentage returns: total and annual.
  • If the investment is a security such as a stock, the final value is the sales price, the initial value is the purchase price, and D is the sum of all dividends received.
  • To find the return for the security overall, simply sum the dollar returns and divide by the initial value.
  • The ROI can be annualized by dividing by the number of years between the purchase and sale of the security.
  • It is widely used because it allows for the easy comparison of the growth rates of multiple investments.

• Value of Personal Selling

  • Personal selling aims to improve the interaction between the customer and the sales facility, and/or salesperson.
  • For instance, in addition to selling, a sales person can collect payment service or repair products, return products, and collect product and marketing information.
  • With increased competition, higher travel and lodging costs, and higher salaries, the cost per sales contract continues to increase.
  • However, commission-only salespeople may become risk-averse and only call on clients who have the highest potential return.
  • Finally, overzealous sales representatives may tread a thin line between ethical and unethical sales techniques.

• Recognition of Revenue at Point of Sale or Delivery

  • The accrual journal entry to record the sale involves a debit to the accounts receivable account and a credit to the sales revenue account; if the sale is for cash, the cash account would be debited instead.
  • When the transfer of ownership of goods sold is not immediate and delivery of the goods is required, the shipping terms of the sale dictate when revenue is recognized.
  • For goods shipped under FOB destination, ownership passes to the buyer when the goods arrive at the buyer's receiving dock; at this point, the seller has completed the sales transaction and revenue has been earned and is recorded.
  • If a company cannot reasonably estimate the amount of future returns and/or has extremely high rates of returns on sales, they should recognize revenues only when the right of return expires.
  • Those companies that can estimate the number of future returns and have a relatively small return rate can recognize revenues at the point of sale, but must deduct estimated future returns.

• The DuPont Equation

  • The DuPont equation is an expression which breaks return on equity down into three parts: profit margin, asset turnover, and leverage.
  • As was the case with asset turnover and profit margin, Increased financial leverage will also lead to an increase in return on equity.
  • Thus, the equation allows analysts to determine which of the factors is dominant in relation to a company's return on equity.
  • For example, certain types of high turnover industries, such as retail stores, may have very low profit margins on sales and relatively low financial leverage.
  • For high end fashion and other luxury brands, increasing sales without sacrificing margin may be critical.

• Creating Sales Force Structure, Territories, and Goals

  • Creating the proper sales force structure, territoires, and goals leads to customer, sales force and firm satisfaction.
  • Sales operations are a set of business activities and processes that help a sales organization run effectively, efficiently, and in support of business strategies and objectives.
  • Management usually sets the sales quota and the sales territory, but it's not easy.
  • Ensure that the compensation scheme allows the sales force to make money when the company does.
  • Explain the components of and rationale behind sales force, territory and sales goal creation

• Return on Common Equity

  • Return on equity (ROE) measures how effective a company is at using its equity to generate income and is calculated by dividing net profit by total equity.
  • Also note that the product of net margin and asset turnover is return on assets, so ROE is ROA times financial leverage.
  • Breaking ROE into parts allows us to understand how and why it changes over time.
  • For example, if the net margin increases, every sale brings in more money, resulting in a higher overall ROE.
  • The return on equity is a ratio of net income to equity.

• CRM and Personal Selling

  • The overall goals are to find, attract, and win new clients, service and retain those the company already has, entice former clients to return, and reduce the costs of marketing and client service.
  • This allows a business to use fewer sales representatives to manage their clients.
  • CRM systems for marketing help the enterprise identify and target potential clients and generate leads for the sales team.
  • Alternatively, Prospect Relationship Management (PRM) solutions offer to track customer behavior and nurture them from first contact to sale, often cutting out the active sales process altogether.
  • Illustrate the rationale and use of customer relations management (CRM) as part of personal selling and sales promotion

• Rebates

  • Personal computer components and electronics seem to have a large portion of rebate sales.
  • Rebates are more flexible and can be turned off and on more easily than a sale or instant discount which tends to lower the perceived value of a promoted product.
  • Rebates offer retailers the benefit of giving customers a temporary discount on an item, to stimulate sales, while allowing it to maintain its current price point.
  • If the turnaround time crosses into the next fiscal year or quarter, a rebate offer can inflate sales in the current period, and not have to be accounted for until the next period and then it could be attributed as a cost reducing sales or expense for the next period.
  • Examine the rationale behind and the use of rebates as part of sales promotions