Cambrige Notes: The Sales Returns and Purchases Returns Day Books

Most businesses allow customers to return goods that they have bought for various reasons
For example if the goods are ill-fitting, of the wrong color, they exceeded ordered quantity, were damaged in transit or are not functioning as expected i.e. malfunctioning.
The return policy is governed by both the business’s and the government’s laws and policies.
When a seller accepts goods returned to them and give a full or partial refund a document known as a credit note is issued.
It is sent to the customer and shows the amount of allowance/refund being given by the seller.
It is called a credit note because the relevant customer’s account is credited with the amount shown thus reducing the amount owed by the customer to the business that issued the credit note.

For example:

On 5 January G Muchenje bought goods worth $450 from J Traders Ltd on credit.
On 14 January G Muchenje returned some of the goods he had bought from J Traders as they were defective. The returned goods were worth $150 and J Traders Ltd issued a credit note to that effect.
The result is that after the credit note is taken into account G Muchenje only owes J Traders Ltd $300.

Double entry for reforms. Image credit Frank Wood Business Accounting 1.

Sales Returns day Book ,Returns Inwards (also known as Sales Returns) and Credit Notes

Is also known as the Returns Inwards Day Book or Returns Inwards Journal.
It is used to record credit notes that are issued to customers after they have been issued to the business’s own customers who would have returned goods originally bought back to the business itself.
Credit notes are listed in the Sales Returns Journal (aka Sales Returns Journal or Returns Inwards Journal) and then:

In the Sales Ledger: Credit the amount of credit notes, one by one, to the accounts of the relevant customers in the ledger.
General Ledger: at the end of the period the total of the Returns Inwards Day Book is posted to the debit of the returns inwards account.

An example on how entries can be made in the Sales Returns Day Book/Sales Returns Journal can be seen here.

Purchases Day Book,Returns outwards and debit notes

If the supplier accepts returns the business might send back goods originally bought for resale (purchases)
A debit note is sent to the supplier in such instances.
It show the quantity and type of goods returned as well as the reason for their return.
The supplier then sends a credit note to the business as evidence that they have accepted the returned goods.
The credit note in such instances is confirmation only.
The debit notes are then posted into the Purchases Returns Day Book.
The Purchases Returns Day Book is also known as the Purchases Returns Journal or the Returns Outwards Journal.
These entries are then recorded as follows into the ledger accounts:

Purchases Ledger: debit the amounts of debit notes, one by one, to the personal accounts of the suppliers in the ledger.
General Ledger: at the end of the period, the total of the Returns Outwards Day Book is posted to the credit of the returns outwards account.

An example of how entries can be made in the Purchases Returns Journal can be seen here.

Cambrige Notes: The Sales Returns and Purchases Returns Day Books- Updated 2024