Returns Outwards Book

Detailed Definition

A Returns Outwards Book, commonly known as the Purchase Returns Book, is an accounting record used to document the return of goods to suppliers. When a business returns goods previously purchased, the transaction is noted in this book of prime entry. This bookkeeping ensures that individual creditor accounts and the general ledger correctly reflect returned items.

Key Functions:

• Recording Supplier Returns: Track returned stock or goods to suppliers, ensuring inventory and liaised accounts are updated accurately.
• Updating Creditors’ Accounts: The returns are recorded in the individual creditor’s accounts within the creditors’ ledger.
• Control Accounts: The total returns outwards are posted to the creditors’ ledger control account and the returns outwards account in the nominal ledger.

Examples

1. Example 1: Faulty Goods Return

   • Scenario: On October 10th, ABC Retail returns 50 units of defective products worth $500 to a supplier.
   • Entry in Returns Outwards Book:

     Date: October 10
     Supplier: XYZ Suppliers
     Details: Return of 50 defective units
     Amount: $500
     

   • These entries would then be reflected in the individual creditor’s account for XYZ Suppliers and the returns outwards account in the nominal ledger.

2. Example 2: Over-Ordered Stock Return

   • Scenario: On November 3rd, DEF Corporation returns over-ordered materials worth $2000 to a supplier.
   • Entry in Returns Outwards Book:

     Date: November 3
     Supplier: LMN Wholesalers
     Details: Return of over-ordered stock
     Amount: $2000
     

   • This transaction updates the individual creditor’s ledger for LMN Wholesalers and the returns outwards account in the nominal ledger.

Frequently Asked Questions (FAQs)

What is the primary use of a Returns Outwards Book?

The primary use of a Returns Outwards Book is to document and track goods returned to suppliers accurately, ensuring that inventory records, individual creditor’s accounts, and general ledger accounts reflect these transactions correctly.

How does the Returns Outwards Book affect the creditors’ ledger?

When goods are returned and documented in the Returns Outwards Book, corresponding entries are made in the individual creditor’s accounts within the creditors’ ledger to reflect the reduction in the outstanding amount owed.

Is the Returns Outwards Book the same for all businesses?

While the fundamental purpose remains the same, the layout and usage can vary depending on the business size, nature, and specific accounting policies employed by the organization.

How are totals in the Returns Outwards Book posted?

The total of all returns noted in the Returns Outwards Book is posted to the creditors’ ledger control account and the returns outwards account in the nominal ledger to ensure comprehensive accounting updates.

Related Terms

Creditors’ Ledger

The creditors’ ledger, also known as the accounts payable ledger, is an accounting record containing individual accounts of suppliers or creditors from whom the business purchases goods or services on credit.

Nominal Ledger

The nominal ledger, commonly referred to as the general ledger, is a complete record of all financial transactions of a business, categorized into accounts for assets, liabilities, equity, revenues, and expenses.

Prime Entry

Prime entry is the initial recording of a financial transaction in the books of prime entry, which include journals such as the purchases book, sales book, and returns outwards book.

Online Resources

• Accounting Coach
• Double Entry Bookkeeping
• Investopedia - Returns Outwards

Suggested Books for Further Studies

• “Fundamentals of Accounting” by W. Steve Albrecht

  • This book provides a comprehensive introduction to accounting principles and concepts, including practical applications of returns books.

• “Principles of Accounting” by Belverd E. Needles and Marian Powers

  • An excellent resource for detailed insights into accounting systems, including prime entry journals and ledger postings.

• “Intermediate Accounting” by Donald E. Kieso, Jerry J. Weygandt, and Terry D. Warfield

  • This book offers a deeper dive into accounting practices, suitable for understanding advanced topics and intricate recording mechanisms.

Accounting Basics: “Returns Outwards Book” Fundamentals Quiz

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