When you create aBill Credit with Item/s (Standalone or from Bill/ Vendor Return Authorization), you will notice that the GL Impact are as follows:

Debit Accounts Payable

Credit Inventory Account

Debit / Credit COGS type account

Debit / Credit Inventory Account

The additional entry which is to Debit/Credit COGS account and Inventory Account pertains to the Cost of Sales Adjustment. This accounts your Vendor Return Variances and enables you to track COGS separately for returns and purchases.

In accounting point of view, it properly valuates yourInventory on Handdepending on your preferredInventory Costing Method(FIFO, LIFO, Average Costing). Since this is based on the preferredInventory Costing Method,Cost of Sales Adjustmentmay increase or decrease the value of theInventory on Hand. For more information regarding the computation ofCost of Sales Adjustment. See article68284Cost of Sales Adjustment on Bill Credit.

To further illustrate, say that user bought Item A at $1 on 1/1/2019. You returned Item A on 1/31/2019. If you are using Average Costing and your Average Cost as of 1/31/2019 is $1.20, there is a variance between the amount when purchased and amount when you returned the item. Thus, there should be an adjustment for your Cost of Goods Sold.

The account used for your Vendor Return Variance is being sourced from your Item record> Accounting subtab> Vendor Return Variance Account. If this field is empty, the system uses the account chosen in your COGS Account field.

Note:This is only applicable to Bill Credits with Items.