The Purchase Returns Day Book, also known as the Returns Outwards Book, is a book of prime entry used to record all goods that a business returns to its suppliers. These returns may occur due to defective items, incorrect deliveries, or goods that do not meet the required specifications. The Purchase Returns Day Book ensures that such transactions are systematically documented and reflected in the business’s financial records.
1. What Is the Purchase Returns Day Book?
The Purchase Returns Day Book records all returns made by the business to its suppliers. When goods are returned, a Debit Note is issued to the supplier, informing them of the return and requesting an adjustment to the amount payable. The total from this book is periodically posted to the Purchases Returns Account in the General Ledger and to individual supplier accounts in the Purchase Ledger.
Key Features of the Purchase Returns Day Book:
- Records Returns to Suppliers: Tracks all goods returned by the business to its suppliers.
- Based on Debit Notes: Each entry corresponds to a debit note issued to the supplier.
- Chronological Order: Entries are made in the order the returns occur.
- Supports the Purchase Ledger: Entries are posted to individual supplier accounts in the Purchase Ledger.
2. Format of the Purchase Returns Day Book
The Purchase Returns Day Book typically includes columns for the date of the return, debit note number, supplier name, description of the returned goods, and the amount.
Example of a Purchase Returns Day Book Format:
| Date | Debit Note No. | Supplier Name | Details | Amount ($) |
|---|
3. Example of Purchase Returns Day Book Entries
Scenario:
XYZ Company returned the following goods to its suppliers in January:
- Jan 5: Returned goods worth $450 to Supplier A due to damage (Debit Note No. 101).
- Jan 10: Returned incorrect items worth $700 to Supplier B (Debit Note No. 102).
- Jan 15: Returned surplus inventory worth $350 to Supplier C (Debit Note No. 103).
Purchase Returns Day Book for January:
| Date | Debit Note No. | Supplier Name | Details | Amount ($) |
|---|---|---|---|---|
| Jan 5 | 101 | Supplier A | Goods returned due to damage | $450 |
| Jan 10 | 102 | Supplier B | Incorrect items delivered | $700 |
| Jan 15 | 103 | Supplier C | Surplus inventory returned | $350 |
| Total Purchases Returns: | $1,500 | |||
4. Posting from the Purchase Returns Day Book to the Ledgers
Once recorded in the Purchase Returns Day Book, transactions are posted to the respective supplier accounts in the Purchase Ledger. The total is also posted to the Purchases Returns Account in the General Ledger to adjust the business’s total purchases.
Example of Purchase Ledger Posting:
| Date | Details | Debit (Dr.) | Credit (Cr.) | Balance |
|---|---|---|---|---|
| Jan 5 | Returned goods to Supplier A | $450 | $450 Dr. | |
| Jan 10 | Returned goods to Supplier B | $700 | $700 Dr. | |
| Jan 15 | Returned goods to Supplier C | $350 | $350 Dr. |
5. Importance of the Purchase Returns Day Book
- Accurate Record-Keeping: Ensures all returned goods are properly recorded, providing an accurate reflection of purchases.
- Adjusts Payables: Reduces the amounts owed to suppliers, directly affecting accounts payable and cash flow.
- Supports Inventory Management: Tracks inventory adjustments, ensuring that stock levels are correctly reported.
- Facilitates Supplier Relations: Maintains clear communication with suppliers regarding returned goods, fostering good business relationships.
6. Differences Between Purchase Day Book and Purchase Returns Day Book
| Aspect | Purchase Day Book | Purchase Returns Day Book |
|---|---|---|
| Purpose | Records all credit purchases of goods and services. | Records all goods returned to suppliers. |
| Effect on Accounts | Increases accounts payable and purchases. | Decreases accounts payable and purchases. |
| Document Issued | Based on invoices received from suppliers. | Based on debit notes issued to suppliers. |
| Impact on Inventory | Increases inventory if goods are received. | Decreases inventory when goods are returned. |
7. The Role of the Purchase Returns Day Book in Accounting
The Purchase Returns Day Book is an essential tool in accounting, providing a systematic way to record and track goods returned to suppliers. By maintaining accurate records of purchase returns, businesses can ensure their financial statements reflect the true cost of purchases, manage inventory effectively, and maintain strong supplier relationships. Proper documentation of returns also facilitates smooth reconciliation processes and accurate reporting in the financial statements.