Journal Entry for Purchase Returns or Return Outwards
Sometimes goods purchased by a business are found unfit for use and may need to be returned to the respective supplier(s). This may happen due to several different reasons, in business terminology, this action is termed as purchase returns or return outwards. Journal entry for purchase returns or return outwards is explained further in this article.
All such events related to goods being returned are documented in the final accounts as they have a monetary impact. Depending on the terms and conditions of a transaction, goods purchased both in cash and credit may be returned.
Journal Entry for Purchase Returns or Return Outwards (in Credit)
|Creditor’s Account||Debit||Debit the decrease in liability|
|To Purchase Returns||Credit||Credit the decrease in expense|
Treatment of Purchase Returns in the Financial Statements
Related Topic – What is COGS or Cost of Goods Sold?
Example – Journal Entry for Purchase Returns
Unreal Corporation purchased raw material worth 90,000 on credit from ABC Corporation. However, at the time of delivery of the goods 5,000 worth of goods were found unfit because of inferior quality.
These goods were returned back to ABC Corporation. Post an accounting entry for purchase returns in the books of Unreal Corporation.
Journal entry for purchase returns in the books of Unreal Corporation
|ABC Corp. A/C||5,000|
|To Purchase Returns||5,000|
As per the three golden rules of accounting,
|ABC Corp. Account||Personal||Debit||Debit the Receiver|
|Purchase Returns Account||Nominal||Credit||Credit all incomes/gains|
Purchase return isn’t exactly gain or an income for the company, however, it reduces liability (in case of credit purchase), therefore, it indirectly acts as a gain.
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