Customers send goods back. You send goods back to suppliers. A return looks simple on the shelf, but in the books it touches sales, stock, cost of goods sold and a customer or supplier balance, all at once. If any of these is missed, your profit, your stock value and your customer balance each drift away from the truth. This guide shows the entries for sales returns and purchase returns, and the rules that keep them clean.
The golden rule: reverse, do not delete
A return is not an erasure. The original sale or purchase happened and stays in the records. The return is a second document that undoes its effect, so that both appear in the history. An auditor can then see what was sold and what was returned.
Sales return
A customer returns goods you sold.
Example: you sold 10 units at Rs 1,000 each (Rs 10,000), and the units had an average cost of Rs 700 (Rs 7,000). The customer returns all 10.
Step 1: reverse the sale
| Account | Debit | Credit |
|---|---|---|
| Sales (or sales returns) | 10,000 | |
| Customer receivable | 10,000 |
Step 2: put the goods back in stock
| Account | Debit | Credit |
|---|---|---|
| Inventory | 7,000 | |
| Cost of goods sold | 7,000 |
The goods return at the original cost of Rs 700, not at today's average. Otherwise, your profit on the sale and your stock value would both be wrong.
If the customer has already paid
If the money was received, you owe a refund or a credit. Pay the refund, or keep the amount as a credit for the customer's next purchase, and record it.
Purchase return
You return goods to a supplier.
Example: you bought 50 units at Rs 400 (Rs 20,000) and return all 50.
| Account | Debit | Credit |
|---|---|---|
| Supplier payable | 20,000 | |
| Inventory | 20,000 |
The supplier balance falls, and the stock leaves at its purchase cost. If the supplier has already been paid, the return creates a credit with that supplier, or a refund to you.
Checks before accepting a return
| Question | Why |
|---|---|
| Is there an original document? | You can only reverse what was recorded |
| Were the goods received in saleable condition? | Damaged returns may need a write-off |
| Has the invoice been paid? | You may owe a refund |
| Is the return within your terms? | Policy |
| Who approved it? | Control |
Damaged returns
If goods come back unsaleable, do not put them back at full cost. Bring them into stock, then write down their value or write them off with an adjustment and a reason. Otherwise, your stock value includes goods nobody can sell.
Partial returns
Customers often return part of an order. Record exactly what came back. If your system only reverses a whole document, ask how it handles partial returns before you rely on it.
Common mistakes
- Deleting the original invoice. The history disappears.
- Returning stock at today's average. The margin changes retroactively.
- No approval. Anyone can reverse any sale.
- Forgetting the customer's payment. The refund is never recorded.
- Putting damaged goods back at full cost.
How OneAccounts does it
A sales return is made from the invoice. It reverses the journal entry, the customer balance and ledger, and puts the goods back into stock at the original cost. The original invoice stays on file and is marked as returned, and a linked return document is created. It is refused if payments have been received against the invoice, or if the invoice has already been returned.
A purchase return is made from the bill. It reverses the entry, the supplier balance and the stock. It is refused if the bill has been paid, if it includes a fixed asset item, or if the return would make stock negative.
In OneAccounts, a return reverses a whole invoice or bill. It does not return part of one. For a partial return, ask us how to handle it before you start. See Trading ERP software.
Frequently asked questions
What is a sales return?
Goods a customer sends back after a sale, with the sale and its cost reversed.
At what cost do returned goods go back into stock?
At the original cost of the sale, not the current average cost.
Should I delete the invoice when goods are returned?
No. Keep it and record the return as a separate reversing document.
What if the customer already paid?
You owe a refund or a credit. Record whichever you give.
What about returns of cash sales?
They work in the same way: the sale is reversed, money goes back out and stock returns at the original cost.