Definition: Purchase Returns or return outwards can be seen as a process where goods are returned to the supplier because of being defected or damaged. Purchase Returns Account is a contra-expense account; therefore, it can never have a debit balance. The balance will either be zero or credit.

What is purchase return called?

A purchase returns journal (also known as returns outwards journal/purchase debits daybook) is a prime entry book or a daybook which is used to record purchase returns. In other words, it is the journal which is used to record the goods which are returned to the suppliers.

Is return outwards an income?

Purchase returns are also known as returns outwards because they are being sent out from the firm which bought them. Total amount of returns outwards is deducted from total purchases in the income statement, thereby giving the figure of net cost of goods actually purchased in the income statement.

What does it mean to have a purchase return?

Since the return of purchased merchandise is time consuming and costly, under the periodic inventory system there will be an account Purchases Returns. This allows the company’s management to see the magnitude of the returns that occurred. The account Purchases Returns is a general ledger account that will have a credit balance (or no balance).

How does the purchase return of inventory work?

The accounting records will show the following bookkeeping entries for the purchase return of inventory: The amount owed to the supplier would have been sitting as a credit on the accounts payable account. The debit above cancels the amount due and returns the suppliers balance to zero. The goods are returned and the asset of inventory decreases.

How does the purchase return affect the income statement?

The credit to the income statement for the purchase return increases the net income which increases the retained earnings and therefore the owners equity in the business. The purchase return journal entry is one of many accounting journals, discover another double entry bookkeeping example at the links below:

How does a purchase return and allowance work?

When the merchandise is returned, he needs to take the items out of goods available for sale and the inventory. He does this by crediting a contra account, purchases returns and allowances. This account is contra to purchases and will reduce the purchases account when he does the month end books. The journal entry for the return looks like: