USA Inventory Valuation & Merchandise Returns


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Hoping that this is a basic question:

When sales merchandise is being returned how should the returned inventory be valued (ie. what cost should the inventory asset account be increased by): the original invoice cost of the merchandise or the current inventory valuation cost of the merchandise? Does the answer change if you are using FIFO vs Average Cost Valuation?

For example: I sell an item that cost me $1.00 (Avg Cost) and thereby reduce my GL Inventory Asset by $1.00. Then, after some time the item is returned but now my Avg Cost for the item has increased to $1.25. Should the return result in the GL Inventory Asset increasing by $1.00 or by $1.25.

I am looking for a definitive answer to this so if someone could refer me to a write-up on this, I would greatly appreciate it.

Thank You
 
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