Return Inwards Journal


Return Inwards Journal or Return Inwards Day Book or (Sales Returns) – Definition and Explanation:

Return inwards journal sometimes called return inwards day book or sales returns. These are sales returns from the customers.

When goods are returned by a customer or a price adjustment is needed then supplier (seller) may issue to customer a credit note to reduce the amount owed by the customer.

Preparation Procedure of Return Inwards Journal and Format:

A copy of this credit note is retained by the supplier (seller) and is used to prepare returns inwards journal. The form of credit notes may vary from business to business but they all show the some basic information and include name of the supplier (trade payable) on the top with the name of the customer (trade receivables), the date of return, the rates, quantities and total value of goods returned. As the purpose of a credit note is to reduce the amount owed by the customer so it should not be recorded in purchases or sales journal. Where goods returned were originally sold after allowing some trade discount, then like sales invoices amount entered in credit notes must be net of trade discount. Follow the given preparation steps:

(i) Sales returns

(ii) Copy of credit note sent

(iii) Recording in returns inwards journal, as:

(a) Individual amounts posted to credit side of customers’ accounts in sales ledger.

(b) Total amount posted to credit side of returns inwards account in general ledger.

The following return inwards journal format is used by the businesses:

return inwards or sales returns journal format

Procedure of Posting Entries from Return Inwards Journal to the Ledger:

Return inwards recorded in the returns inwards journal are posted to the credit side of the personal account of each customer in the sales ledger on individual basis. Moreover, the total of return in at the end of each period is posted to the debit side of the return inwards account in the general ledger. Return inwards journal or sales return journal can be explained with the help of following example:

Solved Example:

The following is a return inwards journal of a business for January 2019:

Return Inwards Journal (Sales Return Journal):

return inwards journal example

Required:

Explain the above return inwards journal and posting its items to sales ledger and general ledger (return inwards account):

Solution:

The double entry is completed by crediting the appropriate accounts of customers in the sales ledger and debiting the total amount of returns to return inwards account in the general ledger. This is shown in the following accounts.

Sales Ledger:

return inwards sales ledger

General Ledger (Return Inwards Account):

return inwards account general ledger