When a customer who has purchased an item decides, for whatever reason, to send it back in exchange for a refund or store credit, this action causes a drop in the item’s total sales.
In most cases, issues with the product or the service itself are to blame for a returned transaction.
The corporation incurs no monetary loss due to sales returns, which can be viewed as a decline in sales.
The ability to accept returns from consumers is crucial to maintaining a high standard of quality in a company’s products and services.
Having a positive customer relationship is crucial to retaining current customers and attracting new ones, and item returns can play a role in this.
Products sold on credit are occasionally returned by creditors for a variety of reasons, including defects, excess quantities, incorrect items, etc.
Sometimes a dealer will discover that he needs to either lower or completely reverse the amount shown on an invoice. Possible causes include:
If you send the merchandise back.
If you need to make an adjustment to an incorrect invoice total, it’s best to enter a larger number.
In cases where the vendor acknowledges that the items are flawed but opts to offer a price reduction rather than demand their return.
If the trade discount is not sufficiently reflected on the invoice, or if the seller agrees to increase the rate of trade discount after the invoice has been issued, the discount will be adjusted accordingly.
When a customer receives an invoice, money is taken out of his account.
When a consumer returns an item or has an invoice adjusted downward, the seller must credit the client’s individual account to bring the total amount owing back down to zero.
He achieves this by issuing a credit note to the debtor. Since a credit note is the inverse of an invoice, they serve opposite purposes.
The recipient of a credit note is not responsible for paying the amount specified on the note, although the payer of an invoice is.
The Returns Inwards Book is where you’ll find a record of all client credits.
This book, which is also called the returns inwards and Allowance Made Book, is where all credit notes are recorded after they have been provided for any reason (such as the return of products, the correction of an error, the award of extra trade discount, or anything else).
Varieties of Store Refunds
1) Refunds on Cash Purchases
Customer returns that result in a monetary reimbursement fall under this category as well.
Two) Refunds for Credit-Memo Purchases
The customer just sends the item back, and then they get a credit for future purchases.
In-Store Credits (3)
These are provided by stores when customers return an item and the store offers a discount.
Please make note of the following in John’s Returns Inwards Book on August 2:
Debtor Muller has returned merchandise with a total worth of $500 after receiving a 20% trade discount. (Referendum Note No. 732)
Thursday, August 5:
A credit of $1,210 was applied to an earlier invoice sent to Harry, the debtor. Note of Court Rule No. 733.
Tuesday, August 10:
David’s returned items had a total net worth of $680 (Credit Reference No. 734).
On the 17th of August:
Without any sort of trade discount, Michel was given an invoice for $2,400. When he pointed out the mistake, the company offered him a Credit Note (No. 735) that gave him a 25% trade discount.
On the 25th of August:
Products totaling $8,600 were sold to Teena. Some of these items get to her broken. Lawrence issued her Cr. Note No. 736 after agreeing to a $1,400 reduction.
John’s Sales Return Book, often known as the Return Inwards, will look like this: Notes:
The total worth of the items Muller sent back was $500. The goods were originally invoiced to him at $500, but as he was eligible for a 20% trade discount, he is now being credited with $400.
The 25% of $2,400 that the invoice is for is $600.
Entering Journal Entries Into General Ledger
When the Ledger Clerk receives the Return Inwards Books, he:
(a) enters the correct folio number in the return inwards book and debits the returns inwards account in the ledger for the amount of the book.
(b) adds the folio number from the returns inwards book to the relevant debtor’s account and credits his account with the amount of the credit note provided to him.
Thus, the sum of all credit entries made in the individual accounts of all applicable debtors is equal to the sum of all debit entries made in the returns inwards account.