What is Purchase Returns and Sales Returns In Accounting
What is purchase returns?
When goods are purchased from a supplier to be sold but the goods purchased are given back to its supplier because of many reasons such as.
- Goods are not as per specification
- Goods in damaged condition
- The buyer acquired the wrong goods
- The seller sent the wrong goods
- The goods have proven to be inadequate in some way.
They are also known as return outward.
They are shown on the credit side of trial balance
Under such conditions, the buyer return the goods to its supplier and raised a Debit Note.
What is a debit note?
A debit note is also known as a debit memo. It is a document that is issued from a buyer to a seller indicating a request to return funds as a result of incorrect or damaged goods or services or cancellation of purchase. A debit note is issued before a credit note can be issued by the supplier and acts as a buyer’s formal request to issue a credit note.
Journal entry of Purchase return
A Ltd purchase goods from R.K enterprise Rs 15,000.
Journal entry when goods are purchased.
Purchase A/c Dr 15000
R.K Enterprise A/c Cr 15000
(BEING GOODS PURCHASED)
Journal entry of purchase return is
When goods purchased from R.K enterprise returns to him because of some discrepancy in goods under such condition we have to make the journal entry of Purchase returns in books of accounts.
Purchase returns is a nominal account. Generally, purchase returns show zero or unfavorable balance (Credit balance). It can also be termed as contra-expense account as purchase returns reduce our purchase expenses.
R.K Enterprise A/c Dr 15000
Purchase Return A/c Cr 15000
(Being goods purchased from R.K Enterprise returns)
Understand it with ledger of R.K Enterprise
R.K Enterprise A/c
|
Particular |
Amount |
Particular |
Amount |
|
Purchase Return A/C |
15000 |
Purchase A/c |
15000 |
|
|
|
|
|
|
Total |
15000 |
|
15000 |
Note what we purchase from R.K Enterprise we have given it back to R.K Enterprise therefore we have no liability toward R.K Enterprise therefore we have created a debit note and send it to R.K Enterprise.
They are shown on the credit side of trial balance
In trading account, they are deducted from purchase as shown below
Trading accounts for the year ending ………
|
Particular |
Amount |
Particular |
Amount |
|
Purchase A/c xxx (-)Purchase Return xxx |
XXX |
|
|
What is sales returns?
Sales returns is just the opposite of purchase returns in purchase returns we give back goods purchase earlier.
In sales return the goods which we sold to our customer are send back to us because of many reason such as
- Goods are not as per specification
- Goods in damaged condition
- The buyer acquired the wrong goods
- The seller sent the wrong goods
- The goods have proven to be inadequate in some way.
A sales return is merchandise sent back by a buyer to the seller, usually for one of the following reasons: Excess quantity shipped.
For sale return, we make credit note
What is credit note?
Credit notes are legal documents, just like invoices, that give you the important ability to cancel out an already issued invoice, either in full or in part.
It means we adjust the party in the books of accounts.
Journal entry of sales returns
Lets take an example
R.K Enterprise sold goods to A Ltd Rs 15000 .
Now in the books of R.K Enterprise.
Mr A. A/c Dr 15000
Sale A/c Cr 15000
(BEING GOODS SOLD)
A Returns good to R.K Enterprise because of some discrepancy in goods under such condition we have to make the journal entry of sales returns in books of accounts.
Sales returns is a nominal account. Generally, Sales returns show zero or unfavorable balance (Debit balance). It can also be termed as a contra-expense account as sales returns reduce our sales Income.
Journal entry of Sales return is
Sales Return A/c Dr 15000
Mr A. A/c Cr 15000
(Being goods return by A)
Trial Balance
|
Particular |
Amount (dr) |
Amount(cr) |
|
Sales |
|
XXX |
|
Sales Return |
XXX |
|
They are shown on the Debit side of trial balance
In trading account, they are deducted from sales in credit side as shown below
Trading accounts for the year ending ………
|
Particular |
Amount |
Particular |
Amount |
|
|
|
Sales A/c xxx (-)Sales Return xxx |
XXX |
Difference between Purchase return and Sales Returns.
|
Purchase Returns |
Sales Returns |
|
Purchase returns is made when goods purchased
are return because not in good condition or any other reason. |
Sales returns entry is made when goods sold are not like by buyer and returns goods to us. |
|
To issue debit note in case of purchase returns |
Issue credit note in case of sales returns |
|
We debit the party in purchase returns |
We credit the party in sales returns. |
|
It decreases our creditors value |
It decreases our debtor value |
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Read More : What are Debit, Credit Note and their Formats?
Q.______ is sent to a customer when he returns the goods
A. Debit note
B. Credit note
C. Proforma invoice
D. Bill
Answer. B Credit note
Q. A ______ is sent to the seller when he is taken back the sold goods
A. Debit note
B. Credit note
C. Proforma invoice
D. Bill
Answer. A Debit note
Q. Purchase Return is also Known as….
A. Return Outward
B. Return Inward
C. Return Dashboard
D. None of the above
Answer. A. Return Outward
Q. Purchase return shown on the ……… side of trial balance
A. Debit
B. Credit
C. Both
D. None of the above
Answer. B Credit
Q. Sales return shown on the ……… side of trial balance
A. Debit
B. Credit
C. Both
D. None of the above
Answer. A Debit
Q. Purchase return decreases the value of
A. Debtors
B. Creditors
C. Both
D. None of the above
Answer. B. Creditors
Q. Sales return decreases the value of
A. Debtors
B. Creditors
C. Both
D. None of the above
Answer. A. Debtors
Q. Issue ………in case of purchase returns
A. Debit note
B. Credit note
C. Proforma invoice
D. Bill
Answer. A Debit note
Q. Issue ………in case of Sales returns
A. Debit note
B. Credit note
C. Proforma invoice
D. Bill
Answer. B. Credit note