The Returns Day Books are essential for recording goods that are either returned by customers or sent back to suppliers. These are divided into two categories:
- Sales Returns Day Book (Returns Inwards): Records goods returned by customers to the business.
- Purchases Returns Day Book (Returns Outwards): Records goods the business returns to suppliers.
Below are detailed examples illustrating how these returns are recorded in their respective day books.
1. Example of a Sales Returns Day Book (Returns Inwards)
The Sales Returns Day Book records goods returned by customers. These returns could be due to defective goods, incorrect deliveries, or goods not meeting the customer’s specifications. When a customer returns goods, the business issues a Credit Note to adjust the amount owed by the customer.
Scenario:
XYZ Company had the following sales returns in January:
- Jan 4: Customer A returned goods worth $500 due to defects (Credit Note No. 001).
- Jan 7: Customer B returned goods worth $750 because the wrong items were delivered (Credit Note No. 002).
- Jan 12: Customer C returned goods worth $300 because of over-ordering (Credit Note No. 003).
Sales Returns Day Book:
| Date | Credit Note No. | Customer Name | Details | Amount ($) |
|---|---|---|---|---|
| Jan 4 | 001 | Customer A | Goods returned due to defects | $500 |
| Jan 7 | 002 | Customer B | Wrong items delivered | $750 |
| Jan 12 | 003 | Customer C | Over-ordering of products | $300 |
| Total Sales Returns: | $1,550 | |||
2. Example of a Purchases Returns Day Book (Returns Outwards)
The Purchases Returns Day Book records goods returned by the business to suppliers. This could happen if the goods received were damaged, incorrect, or did not meet the agreed specifications. When returning goods, the business issues a Debit Note to the supplier to adjust the payable amount.
Scenario:
XYZ Company made the following returns to suppliers in January:
- Jan 5: Returned goods worth $400 to Supplier X due to damage (Debit Note No. 101).
- Jan 9: Returned goods worth $600 to Supplier Y due to incorrect specifications (Debit Note No. 102).
- Jan 14: Returned goods worth $350 to Supplier Z due to over-shipment (Debit Note No. 103).
Purchases Returns Day Book:
| Date | Debit Note No. | Supplier Name | Details | Amount ($) |
|---|---|---|---|---|
| Jan 5 | 101 | Supplier X | Returned due to damage | $400 |
| Jan 9 | 102 | Supplier Y | Incorrect specifications | $600 |
| Jan 14 | 103 | Supplier Z | Over-shipment of goods | $350 |
| Total Purchases Returns: | $1,350 | |||
3. Posting Returns to the Ledgers
After recording in the Returns Day Books, the transactions are posted to the relevant ledgers:
- Sales Returns: Posted to individual customer accounts in the Sales Ledger and the Sales Returns Account in the General Ledger.
- Purchases Returns: Posted to individual supplier accounts in the Purchase Ledger and the Purchases Returns Account in the General Ledger.
A. Sales Ledger Posting Example:
| Date | Details | Debit (Dr.) | Credit (Cr.) | Balance |
|---|---|---|---|---|
| Jan 4 | Goods returned by Customer A | $500 | $500 Cr. | |
| Jan 7 | Goods returned by Customer B | $750 | $750 Cr. | |
| Jan 12 | Goods returned by Customer C | $300 | $300 Cr. |
B. Purchase Ledger Posting Example:
| Date | Details | Debit (Dr.) | Credit (Cr.) | Balance |
|---|---|---|---|---|
| Jan 5 | Goods returned to Supplier X | $400 | $400 Dr. | |
| Jan 9 | Goods returned to Supplier Y | $600 | $600 Dr. | |
| Jan 14 | Goods returned to Supplier Z | $350 | $350 Dr. |
4. The Role of Returns Day Books in Accounting
Returns Day Books play a critical role in accounting by systematically recording goods returned by customers and those sent back to suppliers. These records ensure that sales and purchase figures are adjusted accurately, providing a true reflection of a business’s financial performance. Properly maintained returns day books help businesses manage inventory, improve customer and supplier relations, and support accurate financial reporting.