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Discy Latest Questions

  1. This answer was edited.

    Return Inwards In the layman language, return inwards refers to the goods returned by the buyer (customer) to the seller (i.e., selling entity) due to various issues which were earlier sold on credit. Return inwards is also known as sales returns. The amount of return inwards (or) sales returns is dRead more

    Return Inwards

    In the layman language, return inwards refers to the goods returned by the buyer (customer) to the seller (i.e., selling entity) due to various issues which were earlier sold on credit. Return inwards is also known as sales returns.

    The amount of return inwards (or) sales returns is deducted from the total sales of the firm. It is treated as a contra-revenue transaction. Return inwards holds the debit balance and is placed on the debit side of the trial balance.

    To make this concept easy and crispy, I would further like to add an example and trial balance (tabular format) for your better understanding.

    Example- On 1st May, Max Ltd. (a dealer in the refrigerator) sold 20 refrigerators for 5,00,000 on credit to Alexa Ltd. On 25th May they returned all the refrigerators to Max Ltd. due to the serious defects in a model of the refrigerators. Pass journal entries for the above transaction in the books of Max Ltd.
    In the books of Max Ltd (Modern Approach)

    a) Entry for the sale of goods

    DateParticularsL.F.AmountNature of AccountAccounting Rule
    1st MayAlexa Ltd  a/c Dr500,000AssetDebit- The Increase in Asset
     To Sales returns a/c 500,000IncomeCredit- The Increase in Income

    (Being goods sold on credit to Alexa Ltd)

    b) Entry for the return of goods sold to Alexa Ltd.

    DateParticularsL.F.AmountNature of AccountAccounting Rule
    25th MaySales return a/c   Dr500,000IncomeDebit- The Decrease in Income
     To Alexa Ltd a/c 500,000AssetCredit- The Decrease in Asset

    (Being goods returned by Alexa Ltd due to serious defects)

    Placement in Trial Balance

    Return Inwards

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  1. This answer was edited.

    Return Inwards The return inwards arises when goods that are sold are returned back and hence it has to be deducted from the amount of sales. For Example, I am a dealer in smartphones and I sell them on amazon and amazon has 30 days replacement guarantee scheme especially when the customer buys a ceRead more

    Return Inwards

    The return inwards arises when goods that are sold are returned back and hence it has to be deducted from the amount of sales.

    For Example,

    I am a dealer in smartphones and I sell them on amazon and amazon has 30 days replacement guarantee scheme especially when the customer buys a certain electronic item. Hence for me when the customer returns the smartphone that he purchased it becomes a return inward and so it will be deducted from my sales.

    Return Outwards

    The return outwards arises when the goods purchased are returned either the entire order or only a part of it. Hence, it will be deducted from Purchases.

    For Example,

    I am a watch dealer and I have placed an order with my supplier to supply 20 Smart Watches but he sent me 5 watches of another model so I return them. This is a case of return outward as I am sending goods back to the supplier and hence it shall be deducted from my purchases.

    I guess if you are still not clear with the answer above the below-inserted image may help –

    Presentation of Return Inward and Outward in Income Statement


     

    Aastha Mehta

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