Purchase Returns and sales returns

Journal entry of Purchase Returns and sales returns in Accounting

What is purchase returns ?

When goods purchsed from 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 condition 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 Mohan enterprise Rs 13,000.

Journal entry when goods are purchased.

Particular

Amount

Purchase A/c

13000

   To Mohan

    13,000

(BEING GOODS PURCHASED )

 

Journal entry of purchase return is

When goods purchased from Mohan 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.

Particular

Amount

Mohan Dr

13,000

  To Purchase returns A/c

      13000

(being goods purchased from Mohan returns)

 

Understand it with ledger of Mohan .

Particular

Amount

Particular

Amount

To Purchase return A/c

13000

By purchase A/c

13000

    
 

13000

 

13000

Note what we purchase from Mohan we have given it back to Mohan therefore we have no liability toward Mohan therefore we have created a debit note and send it to Mohan .

Trial Balance

Particular

Amount (dr)

Amount(cr)

Purchase

Xxxx

 

Purchase return

 

xxxx

 

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

To Purchase A/c       xxx

          Purchase return A/c xxx

xxxxx

 

 

 

 

 

What is sales returns ?

Sales returns is just 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 books of accounts.

 

Journal entry of sales returns

Lets take an example 

Mohan sold goods to A Ltd Rs 13000 .

Now in the books of Mohan.

Particular

Amount

A Ltd

13000

   To sales

    13,000

(Being goods sold )

 

A Returns good to Mohan  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 contra-expense account as sales  returns reduce our sales Income.

Journal entry of purchase return is

Particular

Amount

Sales Return A/c

13,000

  To A ltd

      13000

(being goods  return by A )

 

 

Trial Balance

Particular

Amount (dr)

Amount(cr)

Sales

 

Xxxx

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 A/c xxx

xxxx

                                                                                                               

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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