 Because 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. This journal entry is pretty straightforward. We debit accounts receivable and credit sales revenue for the revenue amount of $200,000. We debit costs of goods sold and credit inventory for the cost of $80,000. However, most companies experience returns. In this example, let's assume that approximately 5% of sales are returned. We debit sales revenue and credit refund payable for 5% of revenue, which in this case is $10,000. We also need to record the estimated return of inventory at 5% of cost. So we debit estimated return of 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. Those goods had a cost of $3,200. So we debit refund payable and credit cash for the $8,000. We debit inventory and credit the estimated return inventory for $3,200.