In modern-day trading, it is a very common practice for a business to return unwanted purchased goods to its suppliers. Similarly, goods from customers are accepted if returned. Return Journal is the book of prime entry to record goods returns.
Sales Return Journal
Sales Return Book or Return Inward Book is used for recording the return of goods sold on credit.
Goods that are sold on cash are either exchanged for new goods or paid to the parties in cash if returned, hence not recorded in Sales return Books.
Sale Returns are the usual practice of modern-day businesses and allowed by suppliers dues to many reasons like;
- Allowing return of the product to increase confidence that products are of superior quality and in case of any defects these can be returned.
- Some businesses offer their customers that the products can be returned within the specified days without any question asked. On the other hand, some suppliers make partial refunds if there are justifiable reasons for the return.
- Apart from the supplier’s return policy, in many countries, there are strict consumer protection rights that enforce the suppliers to accept the return of goods that meet certain conditions.
Recording Sales Returns
The format of the Sales return book is identical to the Sales Day Book/ Journal except, a credit note number instead of a Sales Invoice is entered.
Example
During the month of October 2017 following goods return transactions were to be recorded;
- Mr. David Williams returned goods worth $ 25 without giving any reason.
- Ms. Kali Burnett returned goods worth $ 152 due to quality issues.
- Ms. Jayde Burns returned goods worth $ 110 with the complaint of oversize products.
- Mr. Sam Wright returned goods worth $ 80 saying products were no longer required.
Entries into the sales return journal shall be made after verification from the available vouchers/ documentary evidence like Debit Note from the customer, Sales invoice, and Credit Note generated after the returned goods have been accepted by the concerned departments.
Credit Notes/ Memos
Credit notes also called credit memos are the vouchers prepared to document the acceptance of goods returned by the customers.
Credit Notes are issued as proof that the returned goods have been accepted by the supplier. Upon acceptance, the supplier prepares a credit note stating the goods accepted as a return and the amount of refund. Resultantly this provides proof that the receivable amount from the customer has been reduced in the books of account of the supplier. Such reduction can be the result of many reasons like the return of goods, Calculation error found in invoices, and any other adjustment claimed by the suppliers.
Like Debit Notes, Credit Notes are named so because it results in crediting a receivable account in the books of Suppliers/ Creditors.
Accounting Entries for Credit Note
Dr. Sales Return Account XXX
Cr. Receivable Account XXX
Purchase Return Journal
In larger businesses, where there are a number of purchases being made every single day, it is very common that some items purchased are required to be returned. For example, goods purchased are defective or do not meet the requirements of the end-user department.
If the instances of returns are common in a business a separate journal/ book shall be kept to record such purchase returns.
Recording Purchase Returns
The format of the Sales return book is identical to the Sales Day Book/ Journal except, a credit note number instead of a Sales Invoice is entered.
Example
During the month of October 2017, M/s Johan & Co. returned goods as per the below detail;
- Return goods worth $ 137 to Ms. Blake York due to quality issues
- Return goods worth $ 120 to Mr. Peter Pearson due to quality issues
- Return goods worth $ 180 to Mr. Kai Johnson due to quality issues
Debit Notes/ Memos
It is the usual practice of the businesses that when goods are being returned to suppliers like invoices, a
separate voucher e.g. Debit Note is generated. The reason for naming this voucher as a DEBIT note is that generation of this document will result in debiting the supplier account.
Aside from being documentary evidence for purchase returns, Debit notes are also used to document other types of adjustments in supplier accounts.
For example, if there are any sort errors found in supplier’s invoice, or accounting for the effects of revision in rates by the supplier.
It is worth mentioning here that Debit Notes are issued after it has been agreed by the supplier. Usually, a customer prepares a debit note stating the reasons for its creation and sends it to suppliers and upon receipt of this voucher along with the goods if the supplier agrees upon the return he issues a credit note for the customer.
Accounting Entries for Debt Notes
Dr. Supplier’s Account XXX
Cr. Purchase return Account XXX
