Do you know what is the difference between sales and purchase returns in accounting? If not, let’s look at this article for further explanation.
As you know, people in today’s digital era tend to choose to shop online through their subscription e-commerce sites.
In purchasing transactions, not a few buyers are dissatisfied with the goods they bought.
As a result, the buyer usually returns the goods to the seller. For sellers, returning goods from buyers needs good recording, such as using inventory software so that the inventory reports are accurate.
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With this record, the seller will easily find out what returns have occurred. Then, what is the difference between a sales return and a purchase return? Here’s the discussion!
Definition of Sales and Purchase Returns
Before knowing the differences and types of sales and purchase returns, it is important to know in advance the meaning of sales returns and purchase returns.
So you can easily understand the difference between sales and purchase returns.
1. Definition of Sales Returns
Sales return is a condition where the seller accepts the returned goods from the buyer. Items are returned because they are not as expected.
With sales returns, the seller’s business payable to suppliers will also be reduced.
The position of the sales returns account is in the debit column of the financial journal, while the accounts payable position is in the credit column. Pay attention to this in your business bookkeeping application .
Sales returns are merchandise sent back by the buyer to the seller.
Reasons for returns may vary, for example due to an excess quantity ordered or shipped, or due to a defective item.
Returns can also be triggered by late delivery of an item, or the wrong item shipped, or by incorrect product specifications.
The seller records this return as a debit to the sales returns account and a credit to the accounts receivable account.
The total amount of sales returns in this account is a deduction from the amount of gross sales reported in a period.
Companies can set their own return policies.
For example, accept free returns within a certain time, charge a restocking fee, or only accept returns with a receipt.
Some companies may offer exchange or store credit.
After verifying the return according to company policy, the accountant can record this transaction in the sales returns account.
From this description it can be concluded that a sales return is when a customer or client sends a product back to the seller.
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2. Definition of Purchase Return
If the purchase order is the purchase of goods from the supplier to the seller, then the purchase return is the return of the buyer’s goods from the seller to the supplier because the goods do not match expectations.
With this return, the seller’s debt to the supplier will decrease.
The position of accounts payable is in the debit column in the financial journal, while the sales returns account is in the credit column.
Purchase returns occur when a buyer of merchandise, inventory, fixed assets, or other goods sends the goods back to the seller.
In addition, excessive purchase returns can hurt business profitability, so they must be monitored closely.
The difference between Sales and Purchase Returns
For the following discussion, you will understand what are the differences between sales returns and purchases from various sides.
1. Difference Based on the Reason
The first difference between sales and purchase returns is based on the reasons why customers make sales returns or purchase returns.
Several reasons why buyers make sales returns, among others, could be due to excess quantity.
Buyers may have ordered more items than they need, or sellers may accidentally send additional products.
Therefore, the buyer can return these items back to the seller.
The second reason could be due to delays in delivery.
Buyers may return products when they no longer need them.
For example, if a buyer needs a product by a certain date and arrives late, then the buyer can send the product back.
Sales returns can also occur because they do not meet the expectations or expectations of the buyer.
This is because shoppers can order products online or over the phone without seeing the product.
However, when the product arrives, it may be a different size or color than the customer expected, and the customer may return the item.
The next reason is an item that was ordered accidentally. Sometimes shoppers order the wrong item they don’t want.
Buyers can also make sales returns on the grounds that the product is damaged or defective.
Some products arrive damaged or defective due to the manufacturing or shipping process.
Buyers usually send these items back to the seller for a replacement.
Meanwhile, several reasons for purchase returns are as follows:
- The seller initially acquires an excess amount, and wishes to return the remainder to the supplier or suppliers.
- The buyer receives the wrong item, so returns from the buyer are returned to the supplier.
- The seller sent the wrong item.
- Goods have been shown to be out of specification.
Based on the reasons, it can be concluded that a purchase return is when the seller returns goods from the buyer to the supplier because the specifications of the goods do not match.
While the sales return is a situation where the buyer returns the goods to the seller.
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2. Difference Based on Parties Involved
The difference between sales returns and subsequent purchases can be seen from the parties involved.
If in a purchase return, the parties involved are suppliers and sellers. Meanwhile, in a sales return, the parties involved are the buyer and the seller.
3. Differences Based on the Type of Transaction
There are three types of sales return transactions, including:
- Reducing customer receivables.
- Refund the buyer’s payment.
- Requires replacement of damaged goods from the seller or can be called a claim.
Whereas in purchase returns, there are two types of transactions, namely:
- Returns on credit purchases, namely returns on goods from buyers who have purchased on credit or in installments, are considered paid off if the due date is correct.
- Cash purchase returns, namely returns on goods that have been purchased by the buyer in cash and wish to be returned or exchanged if the goods are damaged.
Sales Return Entry Example
Sales return entries may be presented differently depending on the company and the type of transaction. The following is an example of a typical sales return entry:
For example, a buyer returns a table to the seller one week after purchasing it for Rp. 350,000,000.
The buyer paid for it in cash, and when he returned home, he found that the table was damaged or defective.
Then the buyer wants a cash refund rather than an exchange or store credit.
Therefore, the seller must record the following in the financial books as follows:
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Example of Purchase Return Entry
For example, when a seller buys goods from a supplier, then in the books, there will be a debit in the purchase account because it will increase the company’s inventory (assets).
There will be a credit in the cash account if purchased with cash or a credit in the accounts payable account, if the purchase has been made on credit from a third party (supplier).
When the seller returns goods from a previous purchase, either cash or credit, the cash account or accounts payable account will change.
Each will be debited with the appropriate credit for the purchase returns account due to outgoing returns. seller to supplier.
For example, there are sellers who buy goods from suppliers worth Rp. 15,000,000 on September 1, 2019 by paying cash.
The purchase is made on the condition that the goods can be returned only within 15 days from the date of purchase.
On September 13, 2019, the seller returned goods to the supplier for IDR 1,000,000 because there was damage to the goods.
On September 1, 2019, when goods are purchased in cash from a supplier, the purchases account will be debited, and the cash account will be credited.
Thus, the recorded purchase return entries are as follows:
Therefore, the seller then records the purchase return as follows: On September 13, 2019, when the goods were returned, it was Rp. 1,000,000, then the cash account will be debited with credit according to the purchase return account.
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Starting from the differences based on understanding, reasons, related parties, types, to examples of journal entries. So, that’s an explanation regarding the difference between sales returns and purchases that you need to know so that your business financial accounting is better.