Sapna Takia In: Category - Accounting InterviewsWhat type of account is Purchase Return and Sales Return?purchase returnsales returntype of account ShareFacebook1 AnswerVotedRecent Dheeraj 2020-07-29T22:21:26+05:30Added an answer on July 29, 2020 at 10:21 pm This answer was edited. Purchase ReturnsType of Account Purchase returns is a nominal account. Generally, purchase returns show zero or unfavourable balance (Credit balance). It can also be termed as contra-expense account as purchase returns reduce our purchase expenses.Accounting approachesTraditional accounting approach Accounts InvolvedDebit/CreditNature of AccountCreditors a/cDebitPersonal To purchase returns a/cCreditNominalModern accounting approach Accounts InvolvedDebit/CreditNature of AccountAccounting RuleCreditors a/cDebitLiabilityDecrease in liability To purchase returns a/cCreditExpenseDecrease in expenseExample ABC and Co. purchase goods from Max and Co. for 1,00,000 on credit. ABC and Co. later return the goods to Max and Co. due to a serious defect. Pass journal entry for the above transaction.The initial purchase entry will be recorded as followsAccounts InvolvedDebit/CreditNature of AccountValuePurchase a/cDebitExpense1,00,000 To Max a/cCreditLiability 1,00,000(Being goods purchased on credit)On the return of the refrigerator, the following entry will be passed-Accounts InvolvedDebit/CreditNature of AccountValueMax a/cDebitLiability1,00,000 To purchase returns a/cCreditExpense 1,00,000(Being goods returned due to serious defects)Sales ReturnsType of AccountSales returns is a nominal account. Generally, sales returns show zero or favourable balance (Debit balance). It can also be termed as contra-revenue account as sales returns reduce our sales revenue.Accounting approachTraditional accounting approach Accounts InvolvedDebit/CreditNature of AccountSales return a/cDebitNominal To Debtors a/cCreditPersonalModern accounting approach Accounts InvolvedDebit/CreditNature of AccountAccounting RuleSales return a/cDebitIncomeDecrease in income To Debtors a/cCreditAssetDecrease in assetExample XYZ and Co. sold goods to Alexa and Co. for 5,00,000 on credit. Alexa and Co. later return the goods to XYZ and Co. due to serious issues. Pass journal entry for the above transaction.The initial sale entry will be recorded as followsAccounts InvolvedDebit/CreditNature of AccountValueAlexa and Co. a/cDebitAsset1,00,000 To Sales a/cCreditIncome 1,00,000(Being goods sold on credit)On the return of air-conditioner, the following entry will be passedAccounts InvolvedDebit/CreditNature of AccountValueSales return a/cDebitIncome1,00,000 To Alexa and Co. a/cCreditAsset 1,00,000(Being goods returned due to serious issues)Why are the purchase and sales return nominal and not personal?The logic behind it is that the ledger balances of nominal accounts get settled and closed at the end of every accounting period (within 12 months) by transferring them to trading and profit and loss account whereas ledger balances of personal and real accounts are carried forward to the next accounting years.I hope this explanation helps you in any way.0Reply Share ShareShare on FacebookShare on TwitterShare on LinkedInShare on WhatsAppLeave an answerCancel replyYou must login or register to add a new answer.