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Hallo,
Are there two ways to record purchase returns?
1st way: we debit the payables a/c to reflect the purchase returns for this we have opened a new a/c purchase returns
2nd way: we directly credit the purchases a/c itself with the purchase returns, so purchases decrease
If we use the 1st way, I don’t see how this decrease in purchases is reflected in any way in the Purchases a/c, so this is also not reflected in the P&L, isn’t it?
Thank you!
If it is done the first way, then on the Statement of Profit or Loss it will show ‘purchases less purchase returns’ as part of the cost of sales.
So the net effect is exactly the same both ways.I think I understood, the paybles a/c is a B/S a/c, but purchase returns is a P&L a/c, so it goes to the P&L the same way as the purchases a/c, they both meet there.
Thank you very much!
In both cases we debit payables.
And don’t forget that in the exam it is no longer called P&L – it is Statement of Profit or Loss 🙂
but why in both cases, in the second case I don’t have the paybles a/c involved?
I’ll remember Profit or Loss 🙂
With the second way you listed, you credit purchase returns (as you have written) and debit payables (because you owe less).
yes, and if we have:
Dr Purchase returns
Cr Purchases– the Paybles a/c is not involved in this case, isn’t it?
You would never Dr returns and Cr purchases!!!
If you return goods the you owe less to the supplier.
You will always Dr payables and either Cr purchases or Cr returns.If we Dr payables and Cr purchases, is there a third account that has to be opened for the returns, as I don’t see who to relate, or what connects the payables with the purchases with returns, e.g. do we just write:
Payables
Dr Purchases | Cr Purchases = > and this would mean purchase returnsand
Purchases
Dr Paybles | Cr Payables = > and this would mean purchase returnsMaybe this is not a very intelligent question, but I wonder what is written within each account itself.
Thank you!
But Dr Purchases and Cr Purchases would be silly!
Whatever happens, if you return goods you Dr Payables (because you owe less money)
You Cr Purchases (because you have ended up making few purchases)
OR
You Cr Purchase Returns (and then in the Statement of Profit or Loss you subtract returns from purchases – again because the end result is that you have made fewer purchases)What you write in the account is entirely up to you – there are no rules at all about what you write in the account. In practice you write whatever you think is sensible and helps you realise what the entry was for.
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