Definition and Explanation:
Purchase returns are also known as returns outwards because they are being sent out from the firm which bought them. It provides the information relating to the value of goods/inventory returned to the seller from whom the inventory was purchased. The inventory of goods may be returned when goods are found defective, in damaged condition or not in accordance with original sample.
Tough purchase returns (returns outwards) reduce purchases but are not credited to purchase account, rather a separate account is opened to record returns outwards so as to determine total amount of purchases and returns outwards separately. 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.
Example of Purchase Returns or Returns Outwards with Transaction: