When we look at the business books, we often see sales returns along with sales, this is because when a business sells a product, it is called a sale, and when the sold product is received back to the business, it is called a sales return, and sales returns can happen due to many reasons like wrong, defective, broken, extra product received etc. Managing it is as important as managing sales because it plays a vital role in ascertaining actual sales, profit, stock, etc.
Sales returns are managed along with sales, as both are interlinked, and hence both are shown together in the books. When a business makes sales, it increases revenue and decreases stock, and when a business makes sales returns, it decreases revenue and increases stock. In simple words, the functions of sales and sales returns are opposite to each other.
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What is Sales Return?
Sales return means the product sold by the business is received back by the business and is commonly known as returns inward. In other words, when the buyer returns the purchased product to the seller, it is called a sales return for the seller, and it can be due to many reasons like wrong, defective, broken, extra product received, etc. Managing it helps in tracking the actual sales, profit, stock, etc.
Sales return is a part of sales and is deducted from sales to get actual sales and is shown on the debit side of the sales account or sales return book. It is also shown under sales on the credit side of the trading account.
In business, sales returns are managed through debit notes and credit notes as they help in managing debit and credit balances. The one who returns the product issues a debit note, as he would have credited the party’s account when he purchased the product, and the one who receives the returned product issues a credit note as he would have debited the party’s account when he sold the goods.
Features of Sales Return
Following are the features of sales return:
1. Inward Return:
A sales return is an inward return because in this case the return is received back by the seller. In simple words, the one who sells the product receives the product back. For the seller, a sales return is called an inward return, and for the buyer, it is called an outward return because the product goes from the buyer and comes to the seller.
2. Decrease Revenue:
Sales return reduces the revenue in the business because when a sales return happens, it is deducted from sales, and sales is revenue, so it reduces the revenue in the business. In simple words, when sales are made, it increases the revenue, similarly, when sales return happens, it reduces the revenue. For example, sales amount is Rs 100, and sales return amount is Rs 20 in this case, revenue before sales return is Rs 100 but after sales return is Rs 80.
3. Increase Stock:
Sales return increases the stock in the business because when a sales return is made, the product sold is returned to the seller, due to which the stock increases. In simple words, when a sales return occurs, a reverse entry is passed. Due to a sales return, the stock with the seller increases and the stock with the buyer decreases.
4. Deducted from Sales:
Sales returns are subtracted from sales because in this case, the sold product is received back to the seller due to various reasons. In simple words, when a product is sold, it is added to the sales, and when the sold product is received back by the seller, it is subtracted from the sales, and this is done to maintain accuracy and transparency in the business.
5. Uses of Debit and Credit Notes:
In most businesses, sales returns are done through debit notes and credit notes. The person who returns the product issues a debit note, and the person who receives the returned product issues a credit note. Issuing a debit note means the party’s account is debited and issuing a credit note means the party’s account is credited.
6. Recorded in the Books:
Sales returns are as important as sales, hence it is also managed and recorded in the books. It is recorded in sales account, sales return account, subsidiary books, etc. according to their nature and rules of organization. If the number of transactions is less, then it can be managed without subsidiary books, like sales return book, etc., but if the number of transactions is more, then it is suggested to use subsidiary books.
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QNA/FAQ
Q1. What is Sales Return?
Ans: Sales return means the product sold by the business is received back by the business.
Q2. Do sales returns reduce business revenue?
Ans: Yes, sales returns reduce the revenue in the business.
Q3. Are sales returns recorded in the books?
Ans: Yes, sales return is recorded in the books, such as sales return account/account, trading account, sales account, etc.
Q4. Sales returns are also known as what?
Ans: Sales returns are also known as inward returns?
Q5. Write the features of sales return.
Ans: Following are the features of sales return:
1. It is received back by the seller.
2. It is also known as inward return.
3. It reduces the revenue in the business.
4. It increases the stock in the business.
5. It is recorded in the books.
6. It is subtracted from sales.
7. It is managed along with sales.
8. This is done through debit and credit notes.
9. Managing it helps the business.
