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Purchases Returns or Returns Outwards Journal:

Definition and Explanation:

Purchases returns journal is a book in which goods returned to the supplier are recorded. This book is also known as returns outwards and purchases returns day book.

Goods once purchased on credit may subsequently be returned to the seller for certain reasons. For the buyer such return of goods to the supplier (seller) is know as purchases returns. The usual reasons for returning goods are:

  1. Purchaser finds that the goods are unsatisfactory for some reasons, e.g. wrong color, wrong size, not according to the sample, not up to specification, not properly finished; damaged in transit, etc.

  2. The purchaser is entitled by contract to return goods.

While returning goods buyer sends a "debit note" to the seller. The debit note contains the quantity of goods returned and reasons for return of goods. The buyer makes out two copies of debit note. One copy is retained and the other copy is sent to the seller along with goods. On the basis of the copy retained, the buyer records this transaction in his "purchases returns journal"

Suppose on 12.1.2005 S purchased 50 radio sets @ $1000 from I electronics on credit. On receiving the goods, S finds that 10 radio sets are of inferior quality. S returns, these sets to the seller and sends him a debit note. The debit not is given below:


Debit Note

Telephone.............

   From S

No.........

Date.........

   To I Electronics, Washington
We are debiting your account with the value of under mentioned sets returned to you for the reason stated below. We are waiting for a credit note.
Date Particulars Details Amount $

14.1.05

10 radio sets @ $1000 as per invoice

No.... dated 12.1.05

Less trade discount

Returned goods being of inferior quality

 

10,000

Nil

 

 

 

10,000

E. & O.E

Signature


This debit note is entered in the purchases returns journal in the following way:

Purchases Returns Journal

Date Description Invoice L/F Details Amount
14.1.2005 I Electronics
10 radio sets @ $1,000
Less trade discount
Goods returned being inferior quality
--
CL.12

10,000
Nil
----------


10,000

Example:

Enter the following transactions in the purchases returns journal and post them to the ledger accounts:

Jan.5, 2005, Returned to Sunshine Biscuit Co.,
10 cases of biscuits @ $125 per case for damage in transit.

Jan. 18, 2005, Returned to S Stores,
3 bags of sugar @ $500 per bag for not according to order.

Jan. 26, 2005 Returned to P Flour Mills,
10 bags of flour @ $200 per bag for not according to specification, less discount 5%

Solution:

Purchases Returns Journal (Book)

Date Description Debit Note No. L/F Details $ Amount $
5.1.2005 Sunshine Biscuit Co.
10 cases of biscuits @ $125 per case
(Being damaged in transit)
----- CL.8
1250

1250
18.1.2005 S Stores
3 bags of sugar @ $500 per bag
(Not according to order)
----- CL. 12
1500

1500
26.1.2005 P Flour Mills
10 bags of flour @ $200 per bag
Less discount 5%
(Not according to specification)
-----
CL.16

2000
100
-------


1900
31.1.2005 Purchases returns A/C     Cr.     GL. 18 4650

Ledger

Sunshine Biscuit Co. A/C (Folio 8)

5.1.2005



Purchases return A/C
$

1250
 

Balance b/d

$

10,000

S Stores. A/C (Folio 12)

18.1.2005



Purchases return A/C
$

1500
 

Balance b/d

$

8000

P Flour Mills A/C (Folio 16)

26.1.2005



Purchases return A/C
$

1900
 

Balance b/d

$

15,000

Sunshine Biscuit Co. A/C (Folio 18)

 



 
$

31.1.2005


Sundry Creditors A/C
(Total returns for the month)

$

4,650

It must be noted that, the balances are respectively placed on the credit sides of the accounts of the creditors to make the more realistic. It shows that they i.e. Sunshine Biscuit Co., S Stores, P Flour Mills were creditors of the business for $10,000, 8,000, 15,000 respectively. Now their accounts have been debited with $1,250, 1,500 and 1,900 respectively and they are now creditors of the business for $8,750, 6,500, and 13,100 respectively. On the other hand the purchases returns account has not been credited thrice on different dates. Instead it has been credited with the total amount of three transactions aggregating $4,650 (1250 + 1500 + 900), at a time at the end of the month.

Relevant Articles:

What is Subdivision of journal
Purchases Journal
Sales Journal
Purchases Returns Journal
Sales Returns Journal
Special Journal Quiz

 

 

A D V E R T I S E M E N T

 

Financial Accounting Topics


  Introduction to Accounting
 ----------------------------------------------------------------------------
  Transactions and Accounting Equation
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  Analysis of Business Transactions
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  Journal, Ledger and Trial Balance
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  Accounting for Bills of Exchange
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  Special Journals
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  Cash Book
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Bank Reconciliation Statement
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  Final Accounts
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  Work Sheet
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  Capital and Revenue Items
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  Valuation of Inventories
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  Accounts of Non-profit Making Organizations
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  Statement of Cash Flows
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  Accounting Ratios Analysis
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  Depreciation, Provisions and Reserves
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  Accounting Dictionary
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  Financial Calculators
 
 
 
Managerial Accounting Topics

  Financial Statements
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  Cost Volume Profit Relationship
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  Variable Costing System
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  Materials and Inventory Cost Control
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  Activity Based Costing System
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  Standard Costing and Variance Analysis
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  Balanced Scorecard
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  Capital Investment Analysis/Capital Budgeting
 

 

 

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