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purchase returns journal entry

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FA – FIA FFA › purchase returns journal entry

  • This topic has 11 replies, 2 voices, and was last updated 11 years ago by John Moffat.
Viewing 12 posts - 1 through 12 (of 12 total)
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  • April 27, 2014 at 10:33 am #166445
    mp-open
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    • Topics: 96
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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!

    April 27, 2014 at 4:48 pm #166466
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    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.

    April 27, 2014 at 5:49 pm #166470
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    • ☆☆☆

    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!

    April 27, 2014 at 6:02 pm #166472
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    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 🙂

    April 27, 2014 at 6:12 pm #166473
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    • ☆☆☆

    but why in both cases, in the second case I don’t have the paybles a/c involved?

    I’ll remember Profit or Loss 🙂

    April 27, 2014 at 6:50 pm #166475
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    With the second way you listed, you credit purchase returns (as you have written) and debit payables (because you owe less).

    April 27, 2014 at 7:14 pm #166479
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    • Topics: 96
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    • ☆☆☆

    yes, and if we have:
    Dr Purchase returns
    Cr Purchases

    – the Paybles a/c is not involved in this case, isn’t it?

    April 28, 2014 at 5:35 am #166512
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    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.

    April 28, 2014 at 7:06 pm #166662
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    • ☆☆☆

    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 returns

    and

    Purchases
    Dr Paybles | Cr Payables = > and this would mean purchase returns

    Maybe this is not a very intelligent question, but I wonder what is written within each account itself.

    Thank you!

    April 28, 2014 at 7:23 pm #166671
    John Moffat
    Keymaster
    • Topics: 57
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    • ☆☆☆☆☆

    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.

    April 28, 2014 at 8:07 pm #166679
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    Thank you!

    April 29, 2014 at 9:26 am #166722
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    You are welcome 🙂

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