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Discy Latest Questions

  1. This answer was edited.

    Return Outwards In the layman language, return outwards refers to the goods returned by the customer to the supplier (or) manufacturer due to various issues found in the goods (say- quality, defects or damages). Return outwards is also known as purchase returns. The amount of return outwards (or) puRead more

    Return Outwards

    In the layman language, return outwards refers to the goods returned by the customer to the supplier (or) manufacturer due to various issues found in the goods (say- quality, defects or damages). Return outwards is also known as purchase returns.

    The amount of return outwards (or) purchase returns is deducted from the total purchases of the firm. It is treated as a contra-expense transaction. Return outwards holds credit balance and is placed on the credit side of the trial balance.

    To make this concept easy and understandable, I would like to add an example and trial balance (tabular format) for the above explanation.

    Example-  Mr Alex (a dealer in the washing machines) purchases 10 washing machines for 1,00,000 from Amazon on a credit period of 30 days. On 20th April he returns all the washing machines to Amazon due to the serious defects in all of its models. Pass journal entries for the above transaction in the books of Mr Alex.

    In the books of Mr Alex (Modern Approach)

    a) Entry on the purchase of goods from Amazon

    DateParticularsL.F.AmountNature of AccountAccounting Rule
    1st AprilPurchase a/c Dr100,000ExpenseDebit- The Increase in Expense
     To Amazon a/c 100,000LiabilityCredit- The Increase in Liability

    (Being goods purchased on credit from Amazon)

    b) Entry on the return of goods purchased from Amazon.

    DateParticularsL.F.AmountNature of AccountAccounting Rule
    20th AprilAmazon a/c Dr100,000LiabilityDebit- The Decrease in Liability
     To Purchase returns a/c 100,000ExpenseCredit- The Decrease in Expense

    (Being goods returned to Amazon due to serious defects)

    Placement in Trial Balance

    Return Outwards

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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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