Accounting and Journal Entry for Sales Returns


Journal Entry for Sales Returns or Return inwards

Sometimes due to various reasons goods sold by a company may be returned by the respective buyer(s). This may happen due to several different reasons, in business terminology, this action is termed as Sales returns or return inwards. Journal entry for sales returns or return inwards is explained further in this article.

Accounting events related to goods being returned are documented in the final accounts as they have a monetary impact on the financial statements of a company. Depending on the terms and conditions of a transaction, goods sold both in cash and credit may be returned.

Journal Entry for Sales Returns or Return inwards (in Cash)

Sales Returns Account Debit Debit the decrease in revenue
 To Cash Account Credit Credit the decrease in asset

 

Journal Entry for Sales Returns or Return inwards (in Credit)

Sales Returns Account Debit Debit the decrease in revenue
 To Debtor’s Account Credit Credit the decrease in asset

 

Journal entry for sales returns or return inwards
Treatment of sales returns or return inwards in books of accounts

 

Treatment of Sales Returns in the Financial Statements

Return inwards or sales returns are shown in the trading account as an adjustment (reduction) from the total sales for an accounting period.

It is not shown in the income statement or the balance sheet.

Sales returns or return inwards shown in trading account

Related Topic – What is the Accounting Cycle?


Example – Journal Entry for Sales Returns

Unreal Corporation sold raw material worth 10,000 on credit to ABC Corporation. However, at the time of delivery, ABC Corporation found goods worth 2,000 as unfit because they were damaged in transit.

These goods were returned by ABC Corporation. Post an accounting entry for sales returns in the books of Unreal Corporation.

Journal entry for sales returns in the books of Unreal Corporation

Sales Returns Account 2,000
 To ABC Corporation 2,000

 

The two accounts involved in this entry are “Sales Return account” and “ABC Corporation” (Debtor’s) account.

As per the three types of accounts in bookkeeping;

Sales Returns Account Nominal Debit Debit all expenses and losses
ABC Corporation Personal Credit Credit the giver

Sales return isn’t exactly an expense or a loss to the company, however, it reduces current assets (in case of credit sales), therefore, it indirectly acts as a loss.

 

>Read Accounting and Journal Entry for Purchase Returns