 Because of the new revenue recognition standard allows revenue to only be recorded at the net amount to be realized. We need to learn how to account for the return of goods as well. So let's look at this example. During January we sold goods on account for $200,000 with a cost of $80,000. No sales discounts were offered in this example. The journal entry is pretty straightforward. We debit accounts receivable and credit sales revenue for the amount of $200,000. We also debit costs of goods sold in credit inventory for the cost of $80,000. However most companies experience returns. In this example let's assume that approximately 5% of sales will be returned. We debit sales returns and allowances and credit refund payable for 5% of revenue which in this case is $10,000. We also need to record the estimate of returned inventory at 5% of cost. So we debit estimated returned inventory and credit costs of goods sold for $4,000 the estimated return of goods. Once the month is over we can record the actual amount of returns and correct our estimates. In this example assume that $8,000 of goods were returned. The cost of those goods are $3,200. So we debit refund payable and credit cash for the $8,000. We also debit inventory and credit the estimated return to inventory for $3,200.