Purchase Return Accounting

Purchase Return Accounting

In this article we would explain purchase return accounting. Purchase return is a contra revenue account, which would reduce the purchases. The purchase return is a common practice in the business , when supplied goods are either defective or does not meet specification.There are following two types of purchase returns. 

a)    Cash purchase return.

b)   Credit Purchase return.

1.   Cash Purchase Return Accounting:

Journal entry of cash purchase return may be recorded by crediting purchase return and debiting cash or receivable account as case may be. 

cash A/c would be debited in case cash is immediately received with the return of purchase ,otherwise receivable will be created by debiting receivables a/c. The journal entry for purchase return has been explained with an example below ;

Journal entry for purchase return of amounting 200,000 would be as under;

Date	Particulars	Dr	Cr
	Cash /Receivable A/c	200,000
	Purchase Return A/c		200,000

2.   Credit Purchases Return Accounting:

In case purchases are returned to creditor, the creditor is reduced (by debiting) and purchase return is credited.

Date	Particulars	Dr	Cr
	Creditor A/c	200,000
	Purchase Return A/c		200,000

If company maintain the purchase return day book account, then above entry is made in Total creditor account and also in individual account (memorandum account).

At the end of year all purchase return are credited to purchase account. Thus purchases account balance is reduced by purchase return account. Purchases return  is logically not treated as income, rather charged to purchase account.

Date	Particulars	Dr	Cr
	Purchase Return	200,000
	Purchases A/c		20,000

 
Separate Account for purchase Return

Separate account for purchase return is maintained for control purposes. Purchase return are not acceptable to the organization for two reasons i.e. it damages goodwill of the company and there are many costs associated with purchases like processing cost, delivery costs etc.

Closing entry of  Purchases Return :

purchase return account may be closed by transferring the balance to the purchases account. Thus purchases amount will be reduced by the purchases return.

Date	Particulars	Dr	Cr
	Purchases Return A/c	200,000
	Purchased A/c		200,000