John Hay

How is return outwards treated in trial balance?

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  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) 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

    Date Particulars L.F. Amount Nature of Account Accounting Rule
    1st April Purchase a/c Dr 100,000 Expense Debit- The Increase in Expense
     To Amazon a/c  100,000 Liability Credit- The Increase in Liability

    (Being goods purchased on credit from Amazon)

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

    Date Particulars L.F. Amount Nature of Account Accounting Rule
    20th April Amazon a/c Dr 100,000 Liability Debit- The Decrease in Liability
     To Purchase returns a/c  100,000 Expense Credit- The Decrease in Expense

    (Being goods returned to Amazon due to serious defects)

    Placement in Trial Balance

    Return Outwards

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