Returning goods may be expensive for small businesses. However, understanding how purchase returns operate and implementing a solid return policy may help your company’s operations. To record the return transaction of the product purchased from the vendor, the firm uses Purchase Return Journal Entry.
The cash account will be debited in the situation of cash purchases, or the accounts payable account in the case of credit purchases and the purchase return account will be credited to the company’s records.
Purchase Return Definition
Return of goods purchased by the business it is also known as returns outward. Goods may be returned when they are defective, when they are in damaged condition or when they are not in accordance with the sample. Now let’s see how to record these returns in our accounts. Before that let us check which account’s were debited and credited at the time of purchase.
Purchase Return Journal Entry Example
- IF Purchased goods from ‘A’ Rs. 30,000
- Purchased goods mean expanses. Here the expenses increased and debited purchases account and purchase goods from ‘A’,
- Purchases A/c Dr 30,000
- The amount payable to ‘A’. Liability increased and credited to the liability account. Here credited A account. So the general entry purchases account was debited to A account.
- To A(Party) A/C 30,000
- Now Returned goods to ‘A’ Rs. 5,000
- Out of these 30000, 5000 worth goods returned. That means now only the balance amount is payable to ‘A’ and our liability is reduced. then we can debit the liability account. Here we can debit party accounts. That is A account. So debit A account
- A(Party) A/c Dr 5,000
- Now at the time of purchase, we have debited purchases account of Rs. 30,000. Now as the goods are returned, our expenses are reduced. Then we can credit the expenses account.
- Here we can credit purchases account. But here we are not directly crediting purchases account. The instant we are opening a new account called purchase return account and credit in the account.
- And at the end of the accounting period, we will adjust its purchases account. Now we are crediting the purchase return account. So the general entry for return goods to ‘A’.
- To purchase returns account 5,000.
Advantages of Purchase Return Journal Entry:
- The purchase return journal entry is used to record the consumer’s name and address. This information might be used by the supplier to modify their revenue.
- This information can also be used by the buyer to identify if the products returned were cash sales or not.
- In rare situations, the consumer may be eligible to return the products that were charged from accounts payable and credited to purchase returns.
- Another benefit of a purchase return journal entry is that it lowers the inventory level.
- The discount may be computed, and it will appear on the buyer’s income statement.
- It assists the business in recording every transaction involving the return of goods purchased by the organization in cash or credit from its supplier, therefore keeping track of everything.
Important points to remember
The following are the important points to remember about the Purchase Return Journal Entry:
- To figure out the exact balance of inventory in the firm at any one moment, the firm can deduct the balance of such purchase returns from the inventory balance.
- When they are returned to the vendor of the products, the cash account or accounts payable account for the cash or credit purchases will be debited, with a matching credit to the purchase return account as the products are returned to the vendor.