Sales returns are a reduction in the actual sales which occurs when a customer, for whatever reason, returns the item for a cash refund or a credit to his/her account. The reason for a sales return is usually because of a product defect or a service failure. Sales returns can be thought of as reductions in sales, but they do not involve any cash outlay by the company. Sales returns are an important part of the sales process because it allows a company to continuously provide high-quality goods and services to their customers. Returning items, in a way, also helps in building good relationships with the customers, which is important for maintaining repeat business and for increasing new business. Occasionally, goods sold to debtors on credit may be returned by them for various reasons, viz, if the goods are defective, or in excess of their order, or are other than the ones ordered, etc. On certain occasions, a trader may find that the amount charged by him in a particular invoice may have to be reduced, or even totally nullified. The reasons may be: You will recall that the customer’s account is debited when an invoice is issued to him. Thus, in order to reduce the amount of debt in the account, the seller will need to credit the personal account of the customer returning the goods/or being allowed a reduction in the amount charged by an invoice. He does this by issuing the debtor with a credit note. A credit note is therefore opposite in effect to an invoice. An invoice debits the customer making him liable to pay the amount whereas a credit note credits the customer absolving him from the responsibility of paying the stated amount. All credit notes issued to customers are recorded in the Returns Inwards Book. It is important to note that all credit notes, issued for whatever purpose (whether for return of goods, or for correction of an error, or for grant of extra trade discount, or for any other reason) are entered in this book, which is also known as returns inwards and Allowance Made Book. This includes refunds given to customers who return their items and receive cash as a refund. This involves the customer returning the item and in turn, will receive a credit memo for future purchases. These are issued by retailers where they give discounts on certain items due to returned items. Record the following transactions in the Returns Inwards Book of John. August 2: August 5: August 10: August 17: August 25: The Return Inwards or Sales Return Book of John will appear as follows: Notes: When the Return Inwards Books reaches the Ledger Clerk, he: (a) debits the returns inwards account in the ledger with the total of the book, inserting the appropriate folio number in return inwards book. (b) credits the personal account of each individual debtor with the amount of credit note issued to him, and inserts the appropriate folio number in the returns inwards book. Thus the total debit ( in returns inwards account) equals the total of credit entries made in the personal accounts of all relevant debtors.Explanation
Types of Sales Returns
1) Cash-Refund Sales Returns
2) Credit-Memo Sales Returns
3) Store Credits
Example
Posting Return Inwards Book to Ledger
Returns Inwards or Sales Return FAQs
A Return Inwards or Sales Return is an agreement between a buyer and seller in which the buyer returns goods to the seller for a monetary refund, replacements, exchanges, or credit.
Processing a Return Inwards or Sales Return involves creating an invoice that details the return and specifies how it should be handled (refunds, replacements, exchanges, etc.). The invoice must then be approved by both parties before any action can take place.
The invoice should include details of the item being returned, the date of purchase, and any relevant customer information. Additionally, it should specify how the return is to be handled (refunds, replacements, exchanges, etc.).
Yes. Some sellers may have a limit on returns or require that items are returned in their original condition with all accompanying components such as manuals and accessories. These restrictions should be clearly outlined in any return policies before purchase.
The best way to document a Returns Inwards or Sales Return is to create an invoice that outlines all relevant details (the item being returned, date of purchase, customer information, etc.) and ensure that both parties approve it. This will help to clearly define the terms of the return for both buyer and seller.
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.
To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.
