Purchases Return or Returns Outward
When merchandise is returned to the suppliers due to faulty quality or not as per the terms of purchase, it is called as purchases return. To find net purchases, purchases return is deducted from the overall purchases. A purchase return transaction is when the buyer of merchandise, inventory, fixed assets, or other items sends these goods back to the seller. Excessive purchase returns can interfere with the profitability of a business, so they should be intimately monitored.
There is requiring accounting for purchase returns as though no purchase had occurred in the first place. Hence, the value of goods returned to the supplier must be deducted from purchases.
If the purchase was originally made on credit, the payable recognized must be reversed by the number of purchases returned. If the purchases in respect of the goods returned were made for cash, then a receivable must be recognized to acknowledge the asset resulting from the expected reimbursement to be received from the supplier in respect of the returned goods.