Adrian Corp. sells goods on account for $100,000 on May 1. On May 15, the customer returns $40,000 of the merchandise. The customer has not yet paid for any of the goods. What will Adrian record on May 15?

 On May 15, when the customer returns $40,000 worth of merchandise, Adrian Corp. will have to update their accounting records to reflect the return of inventory and the reduction in the amount owed by the customer. Adrian Corp. will record the following two journal entries:

1. Adrian Corp. will record a debit to Sales Returns and Allowances for $40,000. Sales Returns and Allowances is a contra revenue account that reduces the total revenue earned from sales. This entry recognizes that Adrian Corp. no longer expects to receive revenue for the returned goods.

2. Adrian Corp. will record a credit to Accounts Receivable for $40,000. Accounts Receivable represents the amount of money owed to the company by customers who have purchased goods on credit. By crediting this account, Adrian Corp. acknowledges that the customer's obligation to pay has decreased by the amount of the returned goods.

The journal entries would look like this:

Debit: Sales Returns and Allowances - $40,000 Credit: Accounts Receivable - $40,000

This reflects a decrease in expected revenue (due to the return) and a corresponding decrease in the amount the customer owes Adrian Corp.