Purchases returns, or returns outwards, are a normal part of business. Goods may be returned to supplier if they carry defects or if they are not according to the specifications of the buyer.
There is need to account for purchase returns as though no purchase had occurred in the first place.
Hence, the value of goods returned to the supplier must be deducted from purchases.
Where purchase was initially made on credit, the payable recognized must also be reversed by the amount of purchases returned.
The following double entry must be made upon purchases returns:
|Debit||Payable (decrease in liability)|
|Credit||Purchases Returns (decrease in expense)|
Bike LTD purchases a mountain bike from BMX LTD for $100 on credit.
Bike LTD later returns the bike to BMX LTD due to a serious defect in the design of the bike.
The initial purchase will be recorded as follows:
|Credit||BMX LTD (Payables)||100|
Upon the return of bike, the following double entry will be passed:
|Debit||BMX LTD (Payables)||100|
No further entry will be required as the payable due to BMX LTD has been reversed.