Packing Cost Handling for Returned Items
1. Packing Cost on Invoice (Initial Sale):
- When an assembly item is sold, the packing charges are included in the invoice as a line item. These charges are considered income and are recorded as a credit in the ‘Packing Charges (Income)’ account.
- GL Impact: The packing charges (income) are credited to the ‘Packing Charges (Income)’ account at the time of sale.
2. Packing Cost During Item Return (Credit Memo):
- When a customer returns the item, a credit memo is generated. The packing charges (income) that were credited in the invoice are now debited during the credit memo creation.
- GL Impact: The ‘Packing Charges (Income)’ account is debited when the credit memo is raised, reversing the impact of the initial packing charges recorded as income.
3. Handling Returned and Unbuilt Items:
After the return, the item is unbuilt. The packing cost should be identified as non-recoverable.
Solution: You must process an inventory adjustment or journal entry to allocate the packing charges as scrap.
- Journal Entry: Debit the scrap account (or relevant expense account) and credit the packing charges income to reverse the credit memo’s impact.
- This ensures accurate financial tracking and that the packing charges are accounted for as a non-recoverable expense during the unbuild process.