JOURNAL ENTRY FOR PURCHASE RETURN (PARTLY OR FULL QUANTITY AND OTHER PRACTICAL SCENARIOS INCLUDING INDIRECT TAXES)

Hi friends, here  we are going to learn journal entry for Purchase return.

Usually in accounting software we need to pass journal entry but before these we have to understand types of Purchase return 

1) Partly quantity returned 

2)whole quantity returned

PARTLY QUANTITY PURCHASE RETURNED (Cash Purchase)

In this case if we found any damages in Stock which are in small quantities will be returned to vendor including taxes.

 The journal entry will be :-                                                

  Goods worth Rs. 1000/- was returned

SL.NO	PARTICULAR	DEBIT	CREDIT
1	Cash A/c      Dr          To Purchase return A/c	1000	1000

  

(Narration:- Being debit note raised vide bill no:01)

The rules for passing Journal entry

Debit

Here we are getting cash into business by selling goods.

As per Real account rule(cash) "debit what comes into business"(Current asset)

Credit

The goods are returned and there is outflow of stock. purchase return will be deducted from purchase at the year end in profit and loss account or trading account.

As per Real account rule (purchase return) “credit what goes out of business"

PARTLY QUANTITY PURCHASE RETURNED (Credit Purchase)

Here in this case if the Debtor found any damages in Stock which are in small quantities will be returned to vendor by raising a debit note(Credit note in case from seller side) including taxes.

 The journal entry will be:-

 Goods worth Rs. 1000/- was returned to TS Co, 

SL.NO	PARTICULAR	DEBIT	CREDIT
1	TS co. A/c      Dr          To purchase/Material  A/c	1000	1000

(Narration:- Being debit note raised against bill no:02)

The rules for passing Journal entry

Debit

The creditor balance is sitting in the account to cancel it the account is debited.

As per Personal account rule(cash) "debit the receiver account"

Credit

The goods are returned and there is outflow of stock. Purchase return will be deducted from purchase at the year-end in profit and loss account or trading account.

As per Real account rule (purchase return) “credit what goes out of business"

WHOLE QUANTITY RETURNED

In this case, if the whole quantity is returned to Creditor instead of raising the Debit Note it is suggested to raise a sale invoice to transfer the Taxes & duties received.

  The journal entry will be:-

 Goods worth Rs. 1200/- was returned to TS Co, by raising sale invoice including taxes of Rs.200/- 

SL.NO	PARTICULAR	DEBIT	CREDIT
1	Sundry Creditor A/c      Dr          To Sales  A/c          To Duties & Taxes A/c	1200	1000  200

(Narration: - Being Sale (Purchase returned vide bill no: 01)}

The rules for passing Journal entry

Debit

Here we are selling goods on credit and the party who buys goods will become debtors. Debtor is receiving goods.

So, as per personal account rule(sundry debtors) "debit the receiver account"(Current asset)

Credit

When we are selling goods, they are going out of business.

So, as per nominal account rule(sales) “credit all income or gains"(Revenue Account)

Credit

Here Duties and taxes payable will be treated as representative person. When duties are payable will be treated as liability.

As per personal account rule (Duties and taxes) "credit the giver account"(Current liability)

(I.e. taxes collected from debtor are not an income it is a liability and it must be paid to concern tax authorities)

Ex: - EXCISE DUTY, VAT & SERVICE TAX.

REVERSAL ENTRY FOR WHOLE QUANTITY RETURNED

My Dear friends after passing above entry you need to pass adjustment entry to cancel the Sale and purchase, because the entry which we have passed increases the sales.so, the adjustment entry is:-

SL.NO	PARTICULAR	DEBIT	CREDIT
1	Sale A/c      Dr          To Purchase  A/c	1200	1200

(Narration: - Being purchase (Purchase returned against bill no: 01) was reversed}

The rules for passing Journal entry

Debit

Here instead of purchase return we sold the material which leads to increase in sale. Actually it has to be decreased from purchase. So, we are debiting sales to decrease it.

Credit

Purchase return has to decrease from purchase .but here instead of passing journal for purchase we sold goods. So, to show correct purchase amount .it is decreased by crediting it.

Friends in our next topic we are going to learn how to pass journal entries in case of purchase of Machinery in different practical scenarios.