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Purchase Returns, Sales Returns accounts

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Purchase Returns, Sales Returns accounts


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Returns Processing

Accounting

Cost Accounting

Business Accounting

Returns Purchases, Sales


Goods/Stock purchased or sold being returned is quite a common practice in business. This may be on account of a number of reasons like defects in goods, quality not matching the requirement for which the buyer purchased it, the buyer not needing the stock, etc. This happens both in case of goods purchased as well as goods sold by the organisation. Where the goods sold are being returned we call it "Sales Returns" and where goods purchased are being returned we call it "Purchase Returns" The transactions of return of goods are also accounting transactions and have to be recorded in the books of accounts just like any other accounting transaction.

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Recording returns Reversing the Entries


The transactions of returning the goods either in case of purchase or in case of sale are exactly the reverse of the transactions of purchase and sale of goods. Thus, for these transactions of returns, recording reversing the journal entries recorded at the time of making the purchase may sound rational or convenient.

Purchase Returns
Considering a transaction of credit purchases, the two elements effected would be the Purchases a/c and the Vendor a/c. Purchase of stock, being an expenditure, the Purchases a/c is debited and the Vendor being the benefit giver the Vendor a/c is credited. Therefore in recording a transaction of Purchase Returns, the Vendor a/c is debited and the Purchases a/c is credited.

Sales Returns
Considering a transaction of credit sales, the two elements effected would be the Sales a/c and the Buyer a/c. Sale of stock, being an income, the Sales a/c is credited and the Buyer being the benefit receiver the Buyer a/c is debited. Therefore in recording a transaction of Sales Return, the Buyer a/c is credited and the Sales a/c is debited.

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Recording Purchase returns Reversing Entries : Illustration


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The organisation purchased goods from Mr. Ghavri on credit for Rs. 24,000. A Week later it returned goods to the extent of Rs. 3,000. The net result of these transactions would be a net purchase of Rs. 21,000 from Mr. Ghavri. This can be reflected in our account books by recording the first transaction as a credit purchase and recording a reverse transaction at the time of returns. Process Costing Standard Costing
(Variance Analysis)

Journal in the books of M/s __ for the period from ____ to _____ Date
June 15th

Funds Flow Cash Flow

V/R No.

Particulars
Purchases a/c To Mr. Ghavri a/c [Being the value of goods purchased on credit from Mr. Ghavri ] Mr. Ghavri a/c To Purchases a/c [Being the value of goods purchased on credit from Mr. Ghavri returned. ] Dr

L/F

Debit Amount Credit Amount (in Rs) (in Rs)


24,000 24,000

June 21st

Dr

3,000 3,000

Dr
Date
15/06/05

Purchases a/c
Particulars
To Mr. Ghavri a/c

Cr
Particulars
By Mr. Ghavri a/c

Permutations Combinations Probability Theory of Expectation


(Random Variable)

J/F

Amount (in Rs)


24,000 24,000

Date
21/06/05

J/F

Amount (in Rs)


3,000 3,000

sub-total

sub-total

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Purchase Returns, Sales Returns accounts

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21/06/05

By Balance c/d

21,000 24,000

Total
22/06/05 To Balance b/d

24,000 21,000

Total

Dr
Date
21/06/05

Mr. Ghavri a/c


Particulars
To Purchases a/c

Cr
Particulars
By Purchases a/c

J/F

Amount (in Rs)


3,000 3,000

Date
15/06/05

J/F

Amount (in Rs)


24,000 24,000

sub-total
21/06/05 To Balance c/d 21,000 24,000

sub-total Total
22/06/05 By Balance b/d

Total

24,000 21,000 CA CPT CA PE-II CA PCC

Recording Sales returns Reversing Entries : Illustration


Ms. Sunanda purchased goods from the organisation on credit for Rs. 65,000. 2 days later she returned goods to the extent of Rs. 48,000. The net result of these transactions would be a net sale of Rs. 17,000 to Ms. Sunanda. This can be reflected in our account books by recording the first transaction as a credit sale and recording a reverse transaction at the time of returns.

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Journal in the books of M/s __ for the period from ____ to _____ Date
June 15th

V/R No.

Particulars
Ms. Sunanda a/c To Sales a/c [Being the value of goods sold on credit to Ms. Sunanda ] Sales a/c To Ms. Sunanda a/c [Being the value of goods sold on credit to Ms. Sunanda being returned. ] Dr

L/F

Debit Amount Credit Amount (in Rs) (in Rs)


65,000 65,000

June 17th

Dr

48,000 48,000

Dr
Date
15/06/05

Sales a/c
Particulars
To Ms. Sunanda a/c

Cr
Particulars
By Ms. Sunanda a/c

J/F

Amount (in Rs)


48,000 48,000

Date
17/06/05

J/F

Amount (in Rs)


65,000 65,000

sub-total
17/06/05 To Balance c/d

sub-total Total
18/06/05 To Balance b/d

17,000 65,000 65,000 17,000

Total

Dr
Date
21/06/05

Ms. Sunanda a/c


Particulars
To Sales a/c

Cr
Particulars
By Sales a/c

J/F

Amount (in Rs)


65,000 65,000

Date
15/06/05

J/F

Amount (in Rs)


48,000 48,000

sub-total Total
18/06/05 By Balance b/d

sub-total
21/06/05 By Balance c/d

17,000 65,000

65,000 17,000

Total

Transactions involve costs


Isn't using the reverse entry a convenient method for recording. To understand this we will have to understand costs incurred in relation to transactions. For a transaction of purchase we would have administration cost for placing the order, cost goods, etc. For a transaction of sale we would like administration cost for processing the order, goods, cost for delivering the goods etc. to incur costs like for carrying in the have to incur costs cost for packing the

When the goods are returned these charges which have been expended at the time of the original transaction may go waste. Additional transaction costs like transportation cost, packing cost for returning the goods etc., may also have to be incurred in relation to the return transactions. Whoever bears the additional cost, it surely is a waste as it benefits neither of the parties to the transaction. It would be impractical to think of in terms of eliminating the possibility of such transaction. Their occurrence is natural and acceptable. What we look at is to reduce the possibility of returns. An organisation should always pay attention to these whenever there

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Purchase Returns, Sales Returns accounts

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are returns beyond a certain level, whether they be purchase returns or sales returns.

Excess Sales returns


The excess sales returns indicate that Goods which do not meet the requirements of the customers are being sold to them. The quality of goods being sold is poor That sales (quantities) are being made to customers without any caution with regard to the possibility of their returning them The excess sales returns may result in The supply schedule or manufacturing schedule of the buyer getting disturbed which ultimately may result in the buyer moving away to other vendors

Excess Purchase returns


The excess purchase returns indicate that Goods which do not meet the organisational requirements are being purchased The quality of goods being purchased is poor Purchases (quantities) are being made from vendors without any caution with regard to the possibility of their having to return them on account of their being in excess. The excess purchase returns may result in The Organisational supply schedule or manufacturing schedule getting disturbed which ultimately may result in the organisation losing its customers.

Using Purchase Returns a/c and Sales Returns a/c


We have seen that information relating to purchase returns and sales returns would make the organisation sit back and think whenever they find them to be in excess of normal. When the returns are recorded by reversing the entries for the original transaction, no separate information would be available with regard to returns. Only the net information after setting off the returns would be revealed by the Purchases a/c and Sales a/c. We know that "The basic purpose of accounting is derivation of information. The more information we need the more the accounting heads we have to maintain" Thus, to enable the organisations to take proper decisions based on the information relating to returns, separate ledger accounts are used to record the transactions of purchase returns ("Purchase Returns a/c") and sales returns ("Sales Returns a/c").

Recording Purchase returns using Purchase Returns a/c


The organisation purchased goods from Mr. Ghavri on credit for Rs. 24,000. A Week later it returned goods to the extent of Rs. 3,000. The net result of these transactions would be a net purchase of Rs. 21,000 from Mr. Ghavri. This can be reflected in our account books by recording the first transaction as a credit purchase and recording the second transaction as a transaction of purchase returns.

Journal in the books of M/s __ for the period from ____ to _____ Date
June 15th

V/R No.

Particulars
Purchases a/c To Mr. Ghavri a/c [Being the value of goods purchased on credit from Mr. Ghavri ] Mr. Ghavri a/c To Purchase Returns a/c [Being the value of goods purchased on credit from Mr. Ghavri returned. ] Dr

L/F

Debit Amount Credit Amount (in Rs) (in Rs)


24,000 24,000

June 21st

Dr

3,000 3,000

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Purchase Returns, Sales Returns accounts

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Dr
Date
15/06/05

Purchases a/c
Particulars
To Mr. Ghavri a/c

Cr
Particulars J/F Amount (in Rs)

J/F

Amount (in Rs)


24,000 24,000

Date

sub-total Total
22/06/05 To Balance b/d

sub-total
21/06/05 By Balance c/d 24,000 24,000

24,000 24,000

Total

Dr
Date Particulars J/F

Purchase Returns a/c


Amount (in Rs) Date
21/06/05

Cr
Particulars
By Mr. Ghavri a/c

J/F

Amount (in Rs)


3,000 3,000

sub-total
21/06/05 By Balance c/d 3,000 3,000

sub-total Total
22/06/05 To Balance b/d 3,000 3,000

Total

Dr
Date
21/06/05

Mr. Ghavri a/c


Particulars
To Purchase Returns a/c

Cr
Particulars
By Purchases a/c

J/F

Amount (in Rs)


3,000 3,000

Date
15/06/05

J/F

Amount (in Rs)


24,000

sub-total
21/06/05 To Balance c/d 21,000 24,000

sub-total Total
22/06/05 By Balance b/d

24,000

Total

24,000 21,000

Net Purchases
The net purchases can be obtained at any time by setting off the balances in the Purchases a/c and the Purchase Returns a/c.

Recording Sales returns using Sales Returns a/c


Ms. Sunanda purchased goods from the organisation on credit for Rs. 65,000. 2 days later she returned goods to the extent of Rs. 48,000. The net result of these transactions would be a net sale of Rs. 17,000 to Ms. Sunanda. This can be reflected in our account books by recording the first transaction as a credit sale and recording the second transaction as a transaction of sales returns.

Journal in the books of M/s __ for the period from ____ to _____ Date
June 15th

V/R No.

Particulars
Ms. Sunanda a/c To Sales a/c [Being the value of goods sold on credit to Ms. Sunanda ] Sales Returns a/c To Ms. Sunanda a/c [Being the value of goods sold on credit to Ms. Sunanda being returned. ] Dr

L/F

Debit Amount Credit Amount (in Rs) (in Rs)


65,000 65,000

June 17th

Dr

48,000 48,000

Dr
Date Particulars J/F

Sales a/c
Amount (in Rs) Date
17/06/05

Cr
Particulars
By Ms. Sunanda a/c

J/F

Amount (in Rs)


65,000 65,000

sub-total
17/06/05 To Balance c/d 65,000 65,000

sub-total Total
18/06/05 By Balance b/d

Total

65,000 65,000

Dr
Date
17/06/05

Sales Returns a/c


Particulars
To Ms. Sunanda a/c

Cr
Particulars J/F Amount (in Rs)

J/F

Amount (in Rs)


48,000 48,000

Date

sub-total Total
18/06/05 To Balance b/d

sub-total
17/06/05 By Balance c/d 48,000 48,000

48,000 48,000

Total

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Purchase Returns, Sales Returns accounts

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Dr
Date
21/06/05

Ms. Sunanda a/c


Particulars
To Sales a/c

Cr
Particulars
By Sales Returns a/c

J/F

Amount (in Rs)


65,000 65,000

Date
15/06/05

J/F

Amount (in Rs)


48,000 48,000

sub-total Total
18/06/05 By Balance b/d

sub-total
21/06/05 By Balance c/d

17,000 65,000

65,000 17,000

Total

Net Sales
The net sales can be obtained at any time by setting off the balances in the Sales a/c and the Sales Returns a/c.

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Returns Processing

Accounting

Cost Accounting

Business Accounting

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