The articles and research support materials available on this site are educational and are not intended to be investment or tax advice. Please refer to our Customer Relationship Statement and Form ADV Wrap program disclosure available at the SEC's investment adviser public information website: CARBON COLLECTIVE INVESTING, LCC - Investment Adviser Firm (sec.gov). Registration with the SEC does not imply a certain level of skill or training. Required: How would you journalize the above transactions in the books of Y Merchants? SolutionĬontent sponsored by Carbon Collective Investing, LCC, a registered investment adviser. Y Merchants returned the merchandise to Z Traders on the same day. Upon delivery, Y Merchants found that the merchandise was defective and, therefore, could not sell it to customers. On 1 April 2016, Y Merchants purchased merchandise for $2,500 on account from Z Traders. When merchandise purchased using an account are returned to a supplier, it is necessary to debit the accounts payable account and credit the purchase returns and allowances account. Solution Return of Merchandise Purchased on Account The receipt of refund of cash for goods returned to Z Traders.The purchase of merchandise from Z Traders.Required: Make a journal entry in the books of Y Merchants that records: On 2 April 2016, Z Traders returned the full amount in cash to Y Merchants. Upon delivery, Y Merchants found serious defects in the items, meaning that they could not be sold to customers. On 1 April 2016, Y Merchants purchased merchandise for $2,500 in cash from Z Traders. This entry is made when a refund is received from the supplier for the returned merchandise. In the second entry, we debit the cash account and the credit accounts receivable account. This entry is made to recognize the return of merchandise. In the first entry, we debit the accounts receivable account and credit the purchase returns and allowances account. When merchandise purchased for cash are returned to the supplier, it is necessary to make two journal entries. The journal entries for the return of merchandise purchased for cash and merchandise purchased on account are different. ![]() The returns outward book will appear as follows: Journal Entry ![]() This example shows how to record the following transactions in John’s returns outward book. Example: Recording Transactions in the Returns Outward Book The entries are listed in more or less the same manner as invoices received are entered in the purchases book.Īs the various credit notes may bear different serial numbers, these are re-numbered at the time of making entries in the returns outward book for convenience in filing and reference. If goods are returned to a supplier, or if an invoice received from the supplier has an overcharge, a credit note would be sought to rectify the situation.Īll credit notes received from the supplier are entered in the returns outward book. ![]() To record such returns and allowances, the purchase returns and allowances account is used in the buyer’s books. If merchandise purchased are not received according to specifications or if they are defective, buyer can return them to the seller or ask the seller for an allowance (e.g., reduction in price). Merchandise that is returned to suppliers is known as returns outward.
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