Posted in Operations and Supply Chain Terms, Total Reads: 259
Definition: Return Inventory Cost
Return inventory cost is the cost incurred by the seller once the item is returned to the seller. It happens once the inventory is purchased by the buyer but due to some reason it is returned back to the seller. There can be many reasons for the same such as inferior product quality, mismatch in order size, defective product etc.
This has an effect on the physical inventory of both the seller and buyer since there is a movement of goods back to the seller from the buyer. When a customer returned the inventory, cost is incurred by the seller in procuring the part back and replacing the part. The inventory return should be accounted by the seller in two ways.
The first should reflect in the revenue account and the second should reflect in the inventory account since both are changing as a result of inventory return. Accounting rules of debit and credit should be applied and these are opposite to what is generally associated with positive and negative entries. Failure to account properly produces wrong entries in the journal.