I just got store credit when I returned some bad juice. This left me wondering. Which accounts receive the entries when a store issues store credit?
For example, when I made the payment for the juice, they must have made two entries --one for cash received (positive) and one for inventory (negative). In this case I believe the following to hold true:
- They will have to write down the inventory (bad juice).
- They will not change the cash account because they did not give me any cash back.
Furthermore, the store credit expires in the next 6 months. If I do not use it by then won't they simply have a positive cash flow but no revenue item corresponding to it? Are there accounting policies to explain such cash flows?