USA Returns and Replacements Tranactions

Aug 20, 2014
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I do accounting for a hot tub manufacturing company(not public). We have a policy that allows for our product to be returned and replaced under certain warranty factors. We normally sale our product at wholesale pricing to independent retailers. But we also have a store at the factory were we sell the product for retail pricing to the local market. Most of the time when we get returned units back, they can be refurbished and resold at retail pricing thru the Factory's retail store. Question is how to best account for replacement units when they ship out and when the defective units come back. Because of logistics, there isn't a same day swap. Most of the time the replacement units will ship out one day, and the returned(defective) units will come back several days if not months later. Should I be recording and recognizing a sale for these replacement units as they ship out and then recognize a return sale/credit for the return? If so at what selling price and Cost as it's returned into inventory? And would or should the price and cost be affected if the unit is returned a few years later and has depreciated in value. Also if no sales revenue should be recognized on these replacement and return units, how would be the best way to account for these units for inventory tracking. Don't know if this makes any difference but many times the independent retailer will refurbish the unit themselves and try to sell it before it comes back. If they can't sell it for a reduced price within a reasonable time frame, it will then come back to the factory for credit.



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