Returns outwards

What it means

Goods previously purchased that are returned to suppliers; deducted from purchases.

Example

The business returns RM150 of faulty goods, reducing purchases by RM150.

Why it matters

They reduce purchases in the income statement and the supplier's balance.

In practice

Returns outwards, also called purchases returns, are entered first in the returns outwards day book. They are then posted to the credit side of the returns outwards account in the nominal ledger, because they cancel part of the purchases made. In the income statement the total is deducted from purchases when calculating cost of sales, which raises gross profit slightly. For each return, the double entry debits the supplier's account (reducing what the business owes) and credits returns outwards.

For example, a business bought stock costing RM700 on credit and returns faulty goods worth RM120. It debits the supplier RM120 and credits returns outwards RM120. Only RM580 remains payable.

Students often confuse returns outwards with returns inwards. Returns outwards go from the business to its suppliers and reduce purchases. Returns inwards come from customers and reduce sales. Another test is the balance. Returns outwards carry a credit balance, like purchases returns mirroring purchases. Returns inwards carry a debit balance, mirroring sales.

If you often mix up inwards and outwards, one of our teachers can help you build a simple check you can use in the exam. Book a trial class.

Related terms

• Returns inwards
• Cost of sales
• Net purchases

Definitions here are general accounting explanations for study. For your board's exact wording, see its official syllabus via Sources.