Get to Know the Types of Purchase and Sales Returns

People in today’s digital age tend to choose to shop online through their favorite e-commerce site. In the purchase transactions, not a few buyers feel dissatisfied with the goods they buy. As a result, buyers usually return goods to the seller. The return of this item is called sales returns.

With the return of this item, the purchase transaction will change. The seller will record and process the return of the goods from the buyer. All these sales transaction processes can be facilitated by using the POS system. With this system, the process of returning goods and transaction reports will work automatically, so that the return process runs well. Before that, check out the following article to find out the various types and transactions of returns.

Sales and Purchase Returns Definition

Before knowing the types of sales and purchase returns, it is important to know first the definition of sales and purchase returns. So, you can easily understand the sales and purchase returns. 

Sales return

The sales return is a condition when the seller receives the returned goods from the buyers. The goods return is due to the nonconformity with the expectation. With sales return, the account receivables of the seller to the buyer will decrease. The sales return account position is in the debit column in the financial journal, while the account payable position is in the credit column.

To reduce purchase dissatisfaction from suppliers, you can measure the performance of suppliers based on quality, service, price, and so on. Automate purchase submissions and get the best offers from suppliers with procurement systems.

Purchase return

Purchase return is the buyer goods return from the seller to the supplier due to the non-conformity of the goods with the expectation. With sales return, the seller’s debt to the supplier will decrease. The account payable position is in the debit column in the financial journal, while the sales return account is in the credit column.

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The Distinction between Sales and Purchase Return

Talking about the distinction, these two types of returns have several distinctions about purchase and sales returns. By definition, purchase return is when the seller returns the goods from the buyer to the supplier due to inappropriate goods specifications. Meanwhile, the sales return is a condition when the buyer returns the goods to the seller. The next distinctions can be seen from the involved parties. If in the purchase return, the involved parties are the supplier and the seller. Meanwhile, if in the sales return, the involved parties are the buyer and the seller.

Sales Return Transactions Types

Sales returns are divided into three types. Here are the types of transactions:

1. Reduce the buyer’s receivables.
2. Make a return of the buyer payment.
3. Require replacement of damaged goods from the seller or can be referred to as claims.

Purchase Return Transactions Types

In purchase return, there are two types of transactions. Here is an explanation of each transaction:

Credit purchase return

Credit purchase return is a goods return from the buyer that has purchased on credit or installments method will be considered paid off if in accordance with the due date.

Cash purchase return

Cash purchase return is a goods return that has been purchased by the buyer in cash, with a note that the goods can be returned or exchanged if there is damage in the goods.

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Sales and Purchase Return Journal

In buying and selling transactions, it is important to record them. With this record, the seller will easily know the transaction that occurred. This is also a prevention of losses in sales. Check out the examples of sales and purchase return journals:

Sales return journal

ABC is operating in retail goods. When selling the goods, it is mentioned in the invoice that the goods can be returned within 30 days. It has made sales of $50,000,000 for August 2019, and it has sold 60% on a cash basis. Meanwhile, the rest has been sold on a credit basis. ABC had $31,000,000 in outstanding receivables and $2,500,000 in cash at the end of August 2019 balance sheet.

The cost of goods sold is $40,000,000. While the closing inventory shows a balance of $22,000,000. 5% of the goods sold are returned due to defective products. Then, ABC obtained a 20% of gross margin on sales.

Based on the information above, you must enter the sales return journal and estimated balances that will stay in sales, receivables, cash, inventory, and cost of goods sold.

Here is the solution:

1. Doing a calculation on the amount of sales return, which is 5% of sales $50,000,000, which equals $2,500,000.00.
2. Assume that the 60% ratio is return on a cash basis, while the is on receivables.
3. Cash accounts are credited 60% from $2,500,000 to $1,500,000. Then the account receivables are credited 40% from $2,500,000 to $1,000,000.
4. The inventories shall be reduced by $2,500,000 less than 20% margin, which would be $2,500,000 less than $500,000 that is $2,000,000 that would add to inventory and reduce the cost of goods sold by the same.

Below entries shall be posted

Purchase return journal

1. On July 17, 2016, MaxClass purchased trade goods on a cash basis of $ 25,000,000.00.
2. On July 19, 2016, MaxClass purchased a number of trade goods $ 20,000,000.00 with conditions of 2/10, n/30, and invoice number 2710.
3. July 21, 2016, returned purchased trade goods on July 19 for $ 5,000,000.00 due to damage.
4. On July 25, 2016, returned trade goods that were purchased on July 17 for $ 2,500,000.00.
5. On July 28, 2016, repayment of debt for the purchased trade goods on July 19, 2016.

The transaction will be record in the journal as follows:

1. On July 21st, there was a purchase return of trade goods purchased on a credit basis, so that there was a reduction in debt of $ 5,000,000.00.
2. On July 25th, there was a purchase return transaction on a cash basis, so that there was an increase in the cash amount of $ 2,500,000.00.

• The company received a 2% of the remaining account payable on repayment on July 28th.
• The value of the account payable amounted to $ 20,000,000.00.
• Purchase return and discount of $ 5,000,000.00.
• The remaining account payable amounted to $ 15,000,000.00.
• 2% purchase discount of $ 300,000.00.
• The value of trade debt to be paid is $ 14,700,000.00.

If repayment occurs after July 28th, for example, on August 1st, the transaction will be record as follows:

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Conclusion

Returns often occur in sales and purchase transactions when the received goods by the buyers are not appropriate or damaged. The seller will later send the inappropriate goods to the supplier. Returns are divided into two types, namely sales and purchase returns.

The occurrence of goods returning due to the nonconformity of goods makes the seller record it in detail to make it easy to know the goods return transaction that occurs. HashMicro as the leading ERP Software provider in Singapore presents a solution for your business company in recording transactions comprehensively and computerized using Accounting Software. 

In addition, HashMicro can also help your business company to gain operational efficiency using various modules, ranging from Inventory Management Software to Staff Competency Management Software. Contact us now to get the best deals and free demos.