What is Purchase Return? Meaning, Features and More.

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When we look at the books of the business, we often see purchases along with purchase returns, this is because when a business buy a product, it is called a purchase, and when the purchased product is returned to the vendor, it is called a purchase return, and purchase returns can happen due to many reasons such as wrong, defective, broken, extra product received, etc. Managing it is as important as managing purchases, as it plays a vital role in ascertaining the actual purchase, profit, loss, stock, etc.

Purchase returns are managed along with purchases, as both are interlinked, and hence both are shown together in the books. When a business makes a purchase, it increases expenses and stock, and when a business makes a purchase return, it decreases expenses and stock. In simple words, the functions of purchase and purchase return are opposite to each other.

What is Purchase Return?

Purchase return is an economic activity in which a product purchased by the buyer is returned to the seller and is commonly known as outward return. In other words, when the buyer returns the purchased product to the seller, it is called a purchase return for the buyer, and it can be due to many reasons like wrong, defective, broken, extra product received, etc. Managing it helps in tracking the actual purchase, profit, loss, stock, etc.

Purchase returns are a part of purchases and are deducted from purchases to calculate actual purchases and are shown on the credit side of the purchases account or in the purchase returns book. It is also shown under purchase on the debit side of the trading account or manufacturing account.

In business, purchase returns are managed through debit note and credit note as they help in managing the debit and credit balances of accounts. 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 Purchase Return

Following are the features of purchase:

1. Outward Return:

A purchase return is an outward return because in this case the buyer returns the purchased product to the seller. In simple words, the one who buys the product returns the product. For the buyer, a purchase return is called an outward return, and for the seller, it is called an inward return because the product goes from the buyer and comes to the seller.

2. Decrease Stock:

Purchase returns reduce the stock in the business because when a purchase return occurs, the product purchased is returned to the seller, which reduces the stock. In simple words, when a purchase return occurs, a reverse entry is passed. Due to purchase return, the stock with the seller increases and the stock with the buyer decreases.

3. Decrease Expenses:

Purchase return reduces the expenses in the business because when a purchase return happens, it is deducted from the purchase, and the purchase is an expense, so it reduces the expenses in the business. In simple words, when the purchase is made, the expense increases, similarly when a purchase return happens, the expense decreases. For example, the purchase amount is Rs.100 and the purchase return amount are Rs.20, in this case, the expense before purchase return is Rs.100 but after purchase return is Rs.80.

4. Deducted from Purchase:

Purchase returns are subtracted from purchases because, in this case, the product purchased is returned to the seller due to various reasons. In simple words, when the product is purchased, it is added to the purchase, and when the purchased product is returned to the seller, it is subtracted from the purchase, and this is done to maintain accuracy and transparency in the business.

5. Uses of Debit and Credit Notes:

In most businesses, purchase 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:

Purchase returns are as important as purchases, hence it is also managed and recorded in the books. It is recorded in purchase account, purchase 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 purchase return book, etc., but if the number of transactions is more, then it is suggested to use subsidiary books.

Read Also:

• What is Purchase? Meaning, Features, and More.
• What is a Purchase Book? Meaning, Features, and More.
• What is a Purchase Return Book? Meaning, Features, and more.
• What is Sale? Meaning, Features, and More.
• What is a Sales Book? Meaning, Features, and More.
• What is Sales Return? Meaning, Features, and More.
• What is a Sales Return Book? Meaning, Features, and more.
• What is Stock? Meaning, Features, and More.
• What is Goods? Meaning, Features, and More.

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