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Not every purchase a business makes goes as smoothly as they hope. Sometimes, the product received by the business is not up to standard. The quality might be poor, the product may be damaged, the quantity can be inaccurate, the delivery could be too late, or any other reason. In such cases, returning the product is their best option. These goods are then returned to the supplier. These returns are called purchase returns or returns outward. A record of these purchase returns is maintained in a purchase return book.
What is a Purchase Return Book?
A purchase return book is a book of all returns maintained by a business. A purchase return book is also known as a “Return outward book”.
When goods are purchased from the seller but don’t meet the appropriate requirements, they are returned. All returns must be recorded in the purchase return book. Some of the reasons for which a product may be returned to the supplier are:
- Poor quality
- Damaged product
- Inaccurate quantity
- Late delivery
Purchase Return Book Format
A purchase return book has a specific format for recording all returns made. A sample format has been given as follows.
Date | Particulars | Debit Note No. | LF. | Details | Amount |
Some businesses also add a “remarks” column, which includes a brief description of why the product was returned. At the end of each month, the return outward book is totalled.
A debit note is attached with the goods that are returned. The note indicates the amount of money that must be credited to the company’s account in exchange for the goods returned. In the purchase return book, a debit note number is mentioned. Once the supplier receives the goods and the debit note, they will return a credit note.
Purchase Return Entries into a Ledger
Once the purchase return book has been completely updated with all transactions accurately entered, their total is transferred to the ledger. Here, they are put into the “Purchase returns account”.
The two steps that are followed include
- At the end of the day, every entry must be entered in the creditor ledger’s debit side of the corresponding individual’s account.
- The total amount is entered into the general ledger at the end of the month.
The journal entry looks something like this.
Creditor Account | Debit |
Purchase Returns Account | Credit |
What is a Sales Return Book?
A sales return book is quite similar to a purchase return book but not the same. While a purchase return book records goods returned by the business to the supplier, a sales return book records goods returned by the customer to the business.
In other words, a sales return book records details of returns of products for which cash has not been immediately paid. Compared to a purchase return book, this book isn’t concerned with the return of goods for which cash has already been paid.
A sales return book is also called a “Return Inwards book”. Only when returns are not that frequent should they be recorded in the journal. Otherwise, this book should note all returns. The reasons for which a product may be returned are the same as the reasons a business returns products to its supplier.
Sales Return Book Format
A sales return book also has a specific format for recording all returns made. A sample format has been given below.
Date | Particulars | Credit Note No. | LF. | Currency | Amount |
A “remarks” column can be added to this table as well. The end of the month signifies totalling of the inward return book.
Instead of a debit note, the business prepares a credit note. This credit note will be sent to the customer, while a duplicate copy is kept for record purposes. The credit note indicates that the customer’s account has been credited with the correct amount in exchange for the goods.
Sales Return Entries into a Ledger
Once the sales return book has been completely updated with all transactions accurately entered, their total is transferred to the ledger. Here, they are put into the “Sales returns account”.
The two steps that are followed include
- At the end of the day, every entry must be entered into the credit side of the corresponding individual’s account in the debtor’s ledger.
- The total amount is entered into the general ledger at the end of the month.
The journal entry looks something like this.
Sales Returns Account | Debit |
Debtors Account | Credit |
Difference between Purchase Return and Sales Return
While purchase return books and sales return books sound quite similar, they are certainly not the same. A table outlining the key differences between the two has been given below.
Basis | Purchase Return | Sales Return |
Nature | A purchase return is when a business returns goods to its supplier | A sales return is when a customer returns goods to the business |
Effect | No effect on the statement of cash flow or the income statement | As this is related to sales, the income statement is impacted |
Balance | Credit balance | Debit balance |
Conclusion
Both the purchase return book and sales return book are important items maintained by almost every company. It helps the business keep track of the returns flowing into the company (return inwards/sales return) and the returns flowing out of the company (return outwards/purchase returns).
Through the usage of debit notes and credit notes, the business ensures its goods and money are in order and continue to thrive.
