Journalizing Purchase And Sales Return

Purchase or sale return of goods is possible only in case of credit purchase or credit sale of goods or in case of defective quality, error in supply, over supply etc.

Journalizing for purchase return of goods are exactly the opposite for credit purchase of goods. And likewise the journalizing for sales return of goods is exactly the opposite for credit sale of goods.

Journal Entries:

   The following journal entries are required to be passed:

When Goods Are Purchased On Credit:

Purchase A/c -----------------Dr.

   To vendors A/c

(Being goods purchased on credit)

Note:

  1. Purchase of goods is treated as expenditure so it is debited. (Nominal A/c:- All expenses and losses debit)
  2. Vendors A/c is credited as because credit purchase of goods results in the increase of liability to pay for it. Vendor’s is credited as because the vendor becomes creditor for the purchaser.
When Goods Purchased On Credit Are Returned:

Vendors A/c-----------------Dr.

   To Purchase A/c or Purchase Return A/c

(Being purchase return of goods made)

Note:

  1. Vendors A/c is debited because due to purchase return of goods, the liability to pay for the goods purchased earlier on credit has been neutralized to the extent of the amount of credit.
  2. Purchase Return is credited because the amount of total purchase (expenses) made will be reduced to the extent of the return made.

In the case of purchase return, a "Debit Note" is normally sent to the vendor requesting him to credit his account mentioned in the Debit Note. After receiving the goods and Debit Note the seller issue a Credit Note stating that his account (Purchaser's A/c) as mentioned in the Debit note has been credited and the transaction to the extent of purchase return made is hereby neutralized.

When Goods Are Sold On Credit:

Buyer's A/c -----------------Dr.

   To Sales A/c

(Being goods sold on credit)

Note:

  1. Sale of goods is treated as income so it is credited. (Nominal A/c:- All incomes and gains credit)
  2. Buyers A/c is debited as because due to the credit sale of goods, the buyer becomes debtor for the seller. And as such the seller is about to receive money from the buyer
When Goods Sold On Credit Are Returned:

Sales A/c or Sales Return A/c-----------------Dr.

   To Buyer's A/c

(Being sales return of goods made)

Note:

  1. Sales A/c or Sales Return A/c is debited because due sales return, the amount of sales made (income) is reduced
  2. The buyers account is credit, because due to return of goods, the liability of the buyer to pay for it neutralized to the extent of the amount of return made. And as such, the buyer no stands as a debtor for the seller.

The Customer who returns the goods sends a "Debit Note" with the goods returned. On the basis of acceptance of the goods returned by the customer, the credit note is prepared. A "Credit Note" is normally sent to the customer stating that his account has been duly credited. The Credit Note is often printed in "Red ink" to distinguish them from the invoice.