When a business returns goods it has purchased on credit it receives a credit note from the supplier and records this in the purchases returns day book.
The purchases returns day book, sometimes referred to as the purchases returns journal or the returns outwards journal is simply a chronological list of all the purchases returns credit notes and is used to save time, avoid cluttering the general ledger with too much detail, and to allow for segregation of duties.
The information recorded in the purchases returns day book is used to make postings to the accounts payable ledger and to relevant accounts in the general ledger. The purchases returns day book is a book of prime entry and the entries in the day book are not part of the double entry posting.
Information Listed in the Purchases Returns Day Book
The information in the day book is taken from the supplier credit notes and typically includes the following:
- Transaction date
- Accounts payable ledger reference
- Credit note number
- Credit note amount
- Purchases return type columns (inventory, supplies, equipment etc.)
The purchase returns type columns will depend on the nature of business. Some businesses simply have one column and record only inventory items in the purchases returns day book, others use it to record all purchases returns and will for example, include columns for fees, office supplies, equipment etc. The multi-column purchases returns day book should always have an ‘other’ column to record purchases returns which do not fit into any of the main categories.
The layout of the purchases returns day book is similar to the purchases day book. A typical single column purchases return day book is shown below.
The columns in the diagram are the transaction date (Date), supplier name (Supplier), accounts payable ledger folio reference (LF), credit note reference number (Crn.), and the monetary amount of the credit note (Amount) highlighted in gray.
Purchases Returns Day Book Example
The use of the purchases returns day book is a three step process.
- Information is recorded in the purchase returns day book from supplier credit notes
- The purchase returns day book line items are used to update the accounts payable ledger for each supplier
- The purchase returns day book totals are used to update the general ledger
It should be noted that, if the business maintains an accounts payable ledger control account in the general ledger, then only step 3 above is part of the double entry bookkeeping posting.
1. Purchases Returns Day Book is Updated from Credit Notes
Each purchases returns credit note is recorded as a line item in the purchases returns day book as shown in the example below. In this example all the items are assumed to be inventory purchases returns and some information has been omitted to simplify the example. In practice, each line item would include the information listed above.
Each line represents the information from a purchases returns credit note.
2. Purchases Returns Day Book Used to Update the Accounts Payable Ledger
On a regular (usually daily) basis, the line items in the purchases returns day book are used to update each supplier account in the accounts payable ledger. In the above example, 250 is posted to the ledger account of supplier ABC, 350 to supplier EFG, and 200 to supplier XYZ. When posting to the accounts payable ledger, a reference to the relevant page of the purchases returns day book would be included.
As the business maintains control accounts in the general ledger, the accounts payable ledger itself is not part of the double entry bookkeeping, it is simply a record of the amounts owed to each supplier.
3. Purchases Returns Day Book Totals Used to Update the General Ledger
At the end of each accounting period (usually monthly), the purchases returns day book totals are used to update the general ledger accounts. As the business is using an accounts payable control account in the general ledger, the postings are part of the double entry bookkeeping system.
In the above example, the purchases returns day book total for the month is 800, and in this particular case represent inventory purchases returns to suppliers. The double entry bookkeeping entry would be as follows:
In this case, the inventory purchase returns account is credited to record the amount returned. Had the purchases returns day book recorded other items such as equipment purchases returns or office supplies, then the credit would have gone to the appropriate asset or expense account.
The debit entry is to the accounts payable control account in the general ledger, and represents a reduction in the outstanding liability of the business to its suppliers.
Purchases Returns Book Proof of Postings
There are two checks which can be made at the end of an accounting period to prove that the information in the purchases returns day book has been correctly transferred to the ledgers, as follows:
- The total line item postings to the accounts payable ledger made in step 2 above, should equal the total posted to the accounts payable control account in the general ledger in step 3 above.
- The total of all the supplier account balances in the accounts payable ledger should be equal to the balance on the accounts payable control account in the general ledger.