Subsidiary Books: Returns Inwards and Outwards Day Book
Some business transactions that involves the buying and selling of goods on credit may not be smooth from the beginning of the transaction to the end. There could be one or two hitches after goods have been exchange between the buyer and seller which have to do with the goods bought or sold.
This may necessitate the return of goods to seller either in whole or in part. This article focuses on goods previously sold and bought and later return which is called returns inwards and returns outwards.
Returns Inwards Journal
Another name for returns inwards journal is returns inwards day book or sales return book. This is a book used to record goods previously sold to customers but were later returned by the buyer to the seller either in whole or in part probably as a result of:
- Wrong specification, model, colour etc.
- Defect
- Disagreement between the buyer and seller that can be traced to either pricing, discount, payment terms etc.
- Shortage in quantity, weight and other measuring discrepancies.
- Government policy.
When goods are returned by the buyer to the seller, it means that the buyer will not pay for the portion of goods returned to the seller.
From the perspective of the seller, it is returns inwards because the good is coming back to the seller, so the seller received the goods.
To show that a buyer has returned some good, the seller will record it in a good returns register or any other record created for goods return by buyers.
Thereafter, the seller will record it in the returns inwards day book which is one of the accounting books of original entries.
The creation and recording of goods returned in the returns inwards journal is an indication that the transaction has been brought into the seller’s books of account.
The returns inwards day book is not an account. However, the double entry book keeping system require that after the preparation of the returns inwards journal, the total of returns inwards journal for a particular period, e.g. weekly, monthly etc. will be debited to returns inwards account, while the affected customers account will be credited to reduce their debt to the seller.
Below are some examples of returns inwards transactions.
Example 1: Abakaliki Enterprises is a big time seller of consumer goods in Lagos state. The following items were returned to the company in the month of February 2016.
February 10 Belinda returned goods worth N220,000
February 19 Happy Bite Ventures sent goods worth N54,000 back February 27. Nathaniel return N38,020 goods.
Prepare the returns inwards journal to record the above transactions for the month of February 2016.
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Suggestion Solution to Example 1
Abakaliki Enterprises Returns Inwards Journal
For the month of February 2012
| Date | Particulars | Amount |
| 10/2/2016 | Belinda | 220,000 |
| 19/2/2016 | Happy Bite Ventures | 54,000 |
| 27/2/2016 | Nathaniel | 38,020 |
| Total returns inwards for the month debit to returns inwards account | 312.080 |
Example 2: You are to prepare the returns inwards day book from the following sales returns received by Better Limited International in the month of March 2016.
March 9. 12 packets of roofing sheet from Ekiti Products at N4,110 per packet and 5 dozens of roofing nail at N220 per dozen.
March 17. 3½ dozens of roofing nail from Bornu Investment at N2,440 a dozen. March 23. 4 tons of iron rods from Niger Limited for N27,040.
March 31. 16 bags of cement from Agege Ventures at N1,500 each
Suggested Solution to Example 2
Better Limited International Returns Inwards Day Book for the month of March 2016
| Date | Particulars | Details | Amount ( |
| March 9, 2016 | Ekiti Products 12 packets of roofing sheet at | 49,320 1,100 | 50,420 |
| March 17, 2016 | Bornu Investment 3½ dozens of roofing nail at | 8,540 | |
| March 23, 2016 | Niger Limited 4 tons of iron rods. | 27,040 | |
| March 31, 2016 | Agege Ventures 16 bags of cement at | 24,000 | |
| Total returns inwards for the month debit to returns inwards account | 110,000 |
Returns Outwards Day Book
Returns outwards is from the perspective of a buyer because it represents goods initially bought and later returned by the buyer to the seller.
The good is leaving the buyer back to the seller hence it is called return outward. Returns outwards day book is also called returns outwards journal or purchases returns day book.
Returns inwards journal is used to record goods previously bought for resale but later returned to the supplier due to one reason or the other.
These reasons include shortage in quantity, weight and other measuring discrepancies, wrong specification, model, colour etc., defect, disagreement between the buyer and seller that can be traced to either pricing, discount, payment terms etc., and government policy.
The total of goods returned to supplier from the purchases returns day book is transferred to the credit side of the returns outwards account while the individual accounts of the supplier will be debited in the ledger.
Example 3: Awka Mega Business returned the following goods for a week in 2016..
November 7. 20 pairs of hand glove at N50 a pair and 5 pieces of shirt at N650 each to Abeokuta Venture
9. Goods valued N4,450 was returned to Warri Communications.
11. Return good worth N17,250 to Suleja Enterprises as a result of wrong specification.
Prepared the journal to reflect the above
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Suggested Solution to Example 3
Awka Mega Business
Returns Outwards Journal For the week ended November 11, 2016
| Date | Particulars | Details | Amount ( |
| 6/11/2016 | Abeokuta Venture | ||
| 20 pairs of hand glove at | 1,000 | ||
| pair | |||
| 5 pieces of shirt at | 3,250 | 4,250 | |
| 9/11/2016 | Warri Communications | 4,450 | |
| 11/11/2016 | Suleja Enterprises | 17,250 | |
| Total returns outwards for the month transfer to returns outwards account | 25,950 |
Returns with Discount
Like the normal returns, a customer can return goods which he had received trade discount on to the seller. When this occurs, the posting is the same, but the trade discount previously enjoyed on the particular goods been returned should be calculated and removed from the value so as not to overstate the value of the return.
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