Refunds offered on Baby Einstein DVDs

http://www.cbc.ca/consumer/story/2009/10/25/waltdisney-babyeinstein-refunds.html

Summary

In response to a legal challenge about the educational value of the videos, a subsidiary of Walt Disney Co. is offering refunds to those who purchased Baby Einstein videos in the last five years. More than a decade ago, Baby Einstein DVDs appeared on the market scene as an educational tool that assisted babies up to the age of two in developing cognitive skills. In May 2006, the Boston-based advocacy group known as The Campaign for a Commercial-Free Childhood had a dispute with the U.S. Federal Trade Commission regarding the videos tricking consumers into believing that babies could learn words through them even though there was no evidence of scientific research. Eventually, they approached a group of Boston lawyers with their complaints and threatened a class-action lawsuit against Disney.

Connection

In the accounting books, when refunds are allowed, businesses use special “returns and allowances” accounts to record these transactions. For example, in this case, if the customer paid by credit, a credit invoice would be issued by Disney to the customer. In the journal, the “Sales Returns and Allowances” along with the PST and GST Payable accounts (if applicable) would be debited and the Accounts Receivable of the customer would be credited. However, not all businesses have a “Sales Returns and Allowances” accounts in their books if they are simply a small business. In this case, the Sales account is debited instead. When the customer pays cash for merchandise that has to be returned, the Bank account is credited instead of the Accounts Receivable because no credit invoices are issued.

Reflection

For businesses and consumers alike, offering refunds on merchandise is a good idea because it allows consumers to have a peace of mind when purchasing goods knowing that they could have a second chance to return it if they aren’t satisfied with it later. Generally, indecisive customers are more inclined to purchase goods this way and this also helps businesses in selling their goods quickly. However, the disadvantage to offering refunds is that customers might take advantage of the system and return goods often, raising the proportion of their returned sales as compared to their actual net sales. While parents are shocked that the Baby Einstein DVDs did not work as expected, I think there are other options for parents, such as spending quality time with their child instead of passively allowing them to watch baby television.