Journal Entry for Purchase Return

When company purchase goods or assets its intention is to use those goods or assets, however sometimes the item purchased may turn out to be defective or inappropriate and in that case company has no option but to return it to supplier. In accounting for each and every transaction one need to pass journal entries and purchase return is no exception. Given below is the journal entry which is passed for purchase return transactions –

When purchase return is made of goods which are purchased in cash then following journal entry will be passed

Cash a/c Dr

To Purchase return

In the above entry since cash has come back to the company it will be debited (according to accounting rule of debit what comes in) and purchase return is credited because since it results in decrease in cost or expense for the firm (any increase in expense is debited and decrease in expense is credited)

Companies seldom purchase goods on cash rather majority of purchases are made on credit, when goods are purchased on credit and then returned then following journal entry will be passed –

Creditor a/c Dr

   To Purchase return

In the above entry since company has purchased goods on credit it would have resulted in increase in creditor and now since company has returned the good it will result in decrease in creditors and hence creditor account is debited (Any increase in liability is credited and decrease in liability is debited in the books of account) and purchase return account will be credited as explained above.

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