Returns Inwards Vs Returns Outwards
Return Inwards
Return inward or sale return is the amount of goods which already sale to customers but return due to some reasons. In real business, the company allows the customers to return the purchased goods within a certain period due to some reasons. The customers may not happy with the product’s feature, the product work differently from the advertisement, or they broke down too early.
In the competitive market, the supplier even allows the customers to return the goods without any questions ask. It means that they can return the goods for any reason even it is working fine. They want to show that their products are amazing and the buyer will not regret after purchase.
Return Inward will impact the company profit by decreasing the sale and accounts receivable. The company even gives cashback to the customer for the cash sale.
Return Inwards Journal Entry
Return Inward will impact two accounts, sales, and accounts receivable or cash. The company simply debit return inward and credit accounts receivable. The return inward will accumulate into one account which contra with sale account.
| Account | Debit | Credit |
|---|---|---|
| Return Inward | 000 | |
| Accounts Receivable | 000 |
Return inward is the contra account of the sale account on income statement, so it will deduct the sale balance during the period.
Example
ABC company sells 10,000 units of goods at 10 per unit to the customer on credit. After the delivery, the customer found out that they are the wrong products. So they contact the seller and return all of them. Please calculate the return inward and make a journal entry.
Return inward = 10,000 * 10 = 100,000
ABC company will make the following entry:
| Account | Debit | Credit |
|---|---|---|
| Return Inward | 100,000 | |
| Accounts Receivable | 100,000 |
Return Outwards
Return outward is the return which company made to the supplier after purchase. It is opposite from the return inward. The company purchase goods from the seller and decide to return the goods due to various reasons. The seller may deliver low-quality products or wrong specifications.
The company returns the goods which are already delivered to the warehouse. So when they return the goods, it will decrease the inventory and accounts payable balance. It is the same as purchase return.
Return Outwards Journal Entry
Return outward will impact both inventory and accounts payable balance. Company need to debit accounts payable and credit inventory.
| Account | Debit | Credit |
|---|---|---|
| Accounts Payable | 000 | |
| Inventory | 000 |
Example
Company XYZ has purchased 10,000 units of raw material at $ 5 per unit on credit. After the material arrives, the quality check and found that the quality below the acceptable standard. So they have contacted the supplier and decide to return 5,000 units. Both XYZ and the seller agreed to return the material.
Return Outward = 5,000 * $ 5 = $ 25,000
XZY needs to record debit accounts payable and credit inventory or purchase account.
| Account | Debit | Credit |
|---|---|---|
| Accounts Payable | 25,000 | |
| Inventory/Purchase | 25,000 |
Difference Between Return Inwards and Return Outwards
| Return Inwards | Return Outwards | |
|---|---|---|
| Meaning | The goods customer return to us. | The goods that company returns to the supplier. |
| Incur | The transaction incurs when the customer returns the goods back to the seller and they have received them. | The transaction incurs when company returns the goods. |
| Document | The seller needs to issue a credit note to deduct the amount the buyer owes. | The buyer needs to issue the debit note the deduct the payable amount. |
| Record | The transaction will record in the seller book. | The transaction will record in the buyer book. |
| Account | Impact A/R and revenue. | Impact A/P and Inventory. |