Definition
Returns Inwards Book (Sales Returns Book)
The returns inwards book, also known as the sales returns book, is a book of prime entry used in accounting to record any returns of goods that were previously sold to customers. When customers return goods, these transactions are documented in the returns inwards book, which is then used to update individual debtor accounts in the debtors’ ledger, the debtors’ ledger control account, and the returns inwards accounts in the nominal ledger.
Examples
1. A customer returns a defective product
A company sells a laptop for $1,000 on credit. The customer finds the laptop defective and returns it. The returns inwards book will record this $1,000 return, updating the individual customer’s account in the debtors’ ledger and adjusting the total returns in the debtors’ ledger control account and returns inwards accounts in the nominal ledger.
2. Multiple products return in a month
Suppose a retailer receives several goods returns totaling $5,000 in a month. Each return is detailed in the returns inwards book, specifying the date, customer, and amount. This cumulative total will then be posted to the relevant accounts to maintain accurate financial records.
Frequently Asked Questions (FAQs)
1. Why is a returns inwards book important?
The returns inwards book is important because it accurately tracks goods returned by customers. This helps in managing customer accounts, inventory levels, and ensures correct financial reporting.
2. Which accounts are updated through the returns inwards book?
- Individual debtor’s account in the debtors’ ledger
- Debtors’ ledger control account
- Returns inwards account in the nominal ledger
3. How often should the returns inwards book be updated?
Ideally, the returns inwards book should be updated whenever a return occurs to ensure it reflects the most accurate and current data.
4. Is the returns inwards book used for cash sales?
No, the returns inwards book primarily deals with credit sales returns. Cash sales returns are usually recorded directly in cash accounts.
5. Who frequently uses the returns inwards book?
Bookkeepers and accountants frequently use the returns inwards book to ensure accurate financial records and proper reconciliation of accounts.
Related Terms
1. Book of Prime Entry
A book of prime entry is where transactions are first recorded before they are posted to respective accounts in the ledgers. Examples include the sales journal, purchase journal, and returns inwards book.
2. Debtors’ Ledger
Also known as the accounts receivable ledger, it contains individual accounts of each customer showing the amounts they owe to the business.
3. Debtors’ Ledger Control Account
An account in the general ledger that summarizes the total amounts owed by all customers.
4. Nominal Ledger
The nominal ledger is the main ledger, also known as the general ledger, which contains all the financial accounts necessary to produce financial statements.
Online Resources for Further Learning
1. Investopedia: Sales Returns
2. Accounting Coach: Subsidiary Ledgers
Suggested Books for Further Studies
1. Accounting All-in-One For Dummies by Kenneth W. Boyd
An extensive guide covering various aspects of accounting, including the returns inwards book.
2. Intermediate Financial Accounting by Glenn Arnold & Suzanne Kyle
Offers detailed exploration into financial accounting concepts and practices.
3. Accounting Principles by Jerry J. Weygandt, Paul D. Kimmel, & Donald E. Kieso
This book is great for understanding the foundational principles of accounting in depth, including journalizing sales returns.
Accounting Basics: “Returns Inwards Book” Fundamentals Quiz
Thank you for exploring the intricacies of the returns inwards book and participating in our quiz. Your comprehension of this fundamental accounting term is now stronger, aiding you in efficient and accurate bookkeeping practices.
