When a customer returns goods it has bought from a business a credit note is issued by the business and details are recorded in the sales return day book.
The sales return day book, sometimes referred to as the sales return journal or return inwards journal, is a special journal used to record sales returns. The sales return day book is simply a chronological list of the issued 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 sales return day book is used to make postings to the accounts receivable ledger and to relevant accounts in the general ledger. The 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 Sales Return Day Book
The information in the sales return day book is taken from the copy credit notes sent to customers and typically includes the following:
- Transaction date
- Accounts receivable ledger reference
- Sequential sales return credit note number
- Credit note amount
- Sales return type columns (sales tax, delivery charges etc.)
The sales return type columns will depend on the nature of business. Some businesses simply have one column to record the sales return amount whereas others need additional columns for sales tax, delivery fees charged to customers etc. The multi-column sales return day book should always have an ‘other’ column to record amounts which do not fit into any of the main categories.
The layout of the sales return day book is similar to the sales day book.
A typical single column sales return day book is shown below.
The columns in the diagram are the transaction date (Date), customer name (Customer), accounts receivable ledger folio reference (LF), credit note reference number (Crn), and the monetary amount of the credit note (Amount) highlighted in gray.
Sales Return Day Book Example
The use of the sales return day book is a three step process.
- Information is recorded in the sales return day book from copy credit notes sent to customers
- The day book line items are used to update the accounts receivable ledger for each customer
- The day book totals are used to update the general ledger
It should be noted that, if the business maintains an accounts receivable ledger control account in the general ledger, then only step 3 above is part of the double entry bookkeeping posting.
1. Sales Return Day Book is Updated from Copy Credit Notes
Each credit note is recorded as a line item in the sales return day book as shown in the example below. In this example 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 sales return credit note.
2. Sales Return Book Used to Update the Accounts Receivable Ledger
On a regular (usually daily) basis, the line items in the sales return day book are used to update each customer account in the accounts receivable ledger. In the above example, 230 is posted to the ledger account of customer BCD, 170 to customer KLM, and 340 to customer PQR. When posting to the accounts receivable ledger, a reference to the relevant page of the day book would be included.
As the business maintains control accounts in the general ledger, the accounts receivable ledger itself is not part of the double entry bookkeeping, it is simply a record of the amounts owed to each customer.
3. Sales Return Day Book Totals Used to Update the General Ledger
At the end of each accounting period (usually monthly), the sales return day book totals are used to update the general ledger accounts. As the business is using an accounts receivable control account in the general ledger, the postings are part of the double entry bookkeeping system.
In the above example, the day book total for the month is 740, and in this particular case represents returns of merchandise sold on credit terms to customers. The double entry bookkeeping sales return day book entry would be as follows:
In this case, the sales return account is debited to record the sales returns for the period. Had the sales return day book recorded other items such sales tax, delivery fees charged to customers etc, then the debit would have gone to the appropriate tax or income account.
The credit entry is to the accounts receivable control account in the general ledger, and represents the reduction in the amount outstanding from customers for the merchandise returned.
Sales Return Day 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 sales return day book has been correctly transferred to the ledgers, as follows:
- The total line item postings to the accounts receivable ledger made in step 2 above, should equal the total posted to the accounts receivable control account in the general ledger in step 3 above.
- The total of all the customer account balances in the accounts receivable ledger should be equal to the balance on the accounts receivable control account in the general ledger.
About the Author
Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years in all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a BSc from Loughborough University.