Return Inwards:

• Goods already sold by the company were returned to the business by the customers sometimes later.

• Goods can be defective, not according to specification or damage.

• When goods are returned by customers, the company issue a credit note to the customer.

Accounting Treatment:

Debit: Return Inwards Account

Credit: Customer’s Account

In the Income Statement:

Sales XXX

Less: Return inwards (x)

Net Sales YYY

Return Outwards:

• Goods purchased from the suppliers and subsequently return to the suppliers .

• Goods outwards maybe due to wrong quality, damage, wrong specification, etc

• In this case when goods are returned to suppliers, credit notes will be received from the suppliers.

Accounting Treatment:

 Debit: Creditor Account

Credit: Return Outwards A/c

The Return Outward a/c will be debited to the Purchases account to reduce the amount as lesser value of goods are received as a result of the return of goods to the suppliers.