Return outwards are goods returned by a customer to the seller. They are goods that were once purchased from external parties, however, because of being unsatisfactory they were returned back to them, they are also called Purchase returns.
Outward returns reduce the total accounts payable for a business. It is a sales return and on the other, it is a purchase return. The transaction in both cases is reversed and the related sale or purchase is nullified.
Purchase returns reduce the total purchases/accounts payable of a company and the deduction is shown in the trading account. A subsidiary book called Purchase returns book is prepared to record all such entries.
Journal Entry for Return Outwards
|Supplier’s A/C||Debit||Debit the decrease in liability|
|To Return Outwards A/C||Credit||Credit the decrease in expense|
Supplier – This is a reduction in payables for the business.
Return Outwards – This is a reduction in expenses for the business.
Shown in Trading Account (Deducted from Purchases)
Related Topic – What is Sales Return Book?
Let’s suppose that a company “Unreal Pvt Ltd.” returned goods worth 10,000 to its supplier “Star Pvt Ltd.”. The journal entry to record these returns in the books of Unreal Pvt Ltd. will be as follows;
|Star Pvt Ltd. A/C||10,000|
|To Return Outwards A/C||10,000|
Reasons for Purchase Returns
- An incorrect product or size was ordered by the customer. (customer’s mistake)
- An incorrect product or size was sent by the seller. (seller’s mistake)
- Damaged or defective products received. (product damaged)
- The quality of the product was not as expected. (bad quality)
- Late delivery of the product. (timing)
- The buyer purchased an excessive amount. (quantity)
- Better price found by the buyer with another seller. (price options)
Short Quiz for Self-Evaluation
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