Sales Return vs Purchases Return Books: Debit and Credit Notes

A box of damaged notebooks goes back to the wholesaler. The shopkeeper calls it a purchases return. The wholesaler calls the very same box a sales return.

Nothing about the box has changed. Only the person keeping the accounts has changed.

That is the best place to start this chapter. Before deciding on a book, a note, or a debit and credit, ask: Whose books am I preparing?

We will follow a small stationery business through both kinds of returns, prepare its return books, and check the amounts against its suppliers and customers. Unless a question says otherwise, the examples below ignore GST and use separate Purchases, Sales, and Return accounts.

Sales Return and Purchases Return: The Main Difference

A purchases return sends trading goods back to a supplier. A sales return brings previously sold goods back from a customer. Their other names describe the movement from the business’s point of view: returns outwards and returns inwards.

For the usual school subsidiary-book question involving credit transactions, use this map:

Question	Purchases return	Sales return
Who sends goods back?	Our business	Our customer
Return book	Purchases Return Book	Sales Return Book
Usual document we issue	Debit note	Credit note
Individual party posting	Debit supplier	Credit customer
Return account posting	Credit	Debit

These document and posting conventions are explained in sections 4.3 and 4.5 of NCERT’s Recording of Transactions II.

One Return, Two Sets of Books

Imagine Cedar Stationers buys notebooks worth Rs. 15,000 on credit from Paperline Traders. Later, Cedar returns defective notebooks worth Rs. 3,000. The return is accepted, and neither business has yet paid or received money.

In Cedar Stationers’ books

Cedar is the buyer. Its original purchase created a liability of Rs. 15,000 to Paperline. After the return, it owes only Rs. 12,000.

The return entry is:

Account	Debit Rs.	Credit Rs.
Paperline Traders A/c	3,000
To Purchases Return A/c		3,000

Cedar prepares a debit note because Paperline’s account is being debited. The return belongs in Cedar’s Purchases Return Book.

In Paperline Traders’ books

Paperline is the seller. It originally had Rs. 15,000 receivable from Cedar. That receivable now falls to Rs. 12,000.

Account	Debit Rs.	Credit Rs.
Sales Return A/c	3,000
To Cedar Stationers A/c		3,000

Paperline prepares a credit note because Cedar’s account is being credited. Paperline records the return in its Sales Return Book.

Try checking the result without looking at either entry: Cedar owes Rs. 12,000 and Paperline expects Rs. 12,000. The two views agree.

What Goes on a Debit Note or Credit Note?

A useful return document identifies the issuer, the other party, its date and serial number, the goods, the amount, and the reason for the return. An original invoice reference helps connect the correction to the earlier transaction.

For Cedar’s return, a simple classroom debit note could read:

Paperline’s corresponding credit note would identify Cedar as the customer, describe the accepted return, and state that Cedar’s account has been credited by Rs. 3,000.

Do not record the return twice because two documents exist. A debit note sent and a matching credit note received can support the same adjustment. Match the invoice, quantity, and amount before treating a later document as a new transaction.

A Complete Worked Example: Prepare Both Return Books

Cedar Stationers buys and sells stationery. Prepare its return books for September from the following information. All the merchandise transactions listed here were originally on credit and remain unsettled. All returns are accepted at the original invoice rates.

1. 6 September: Returned 20 notebook bundles to Paperline Traders. List price was Rs. 200 per bundle, less 25% trade discount. Debit Note DN-21.
2. 10 September: Bright Academy returned 12 geometry sets. Original selling list price was Rs. 250 each, less 10% trade discount. Credit Note CN-11.
3. 18 September: Returned 8 pen cartons to Inkway Suppliers. List price was Rs. 500 per carton, less 10% trade discount. Debit Note DN-22.
4. 24 September: Maple Stores returned 5 art kits previously sold for Rs. 400 each, with no trade discount. Credit Note CN-12.
5. 27 September: Returned an unused office chair bought on credit for Rs. 4,800 from Seatcraft. The chair was for Cedar’s office, not for resale. Seatcraft accepted a full cancellation of the charge.

Step 1: Work out the invoice value of the returned goods

Use only the quantity returned. Do not copy the value of the full original order.

Paperline: 20 x Rs. 200 = Rs. 4,000. Less 25% trade discount, Rs. 1,000. Return value = Rs. 3,000.

Bright Academy: 12 x Rs. 250 = Rs. 3,000. Less 10% trade discount, Rs. 300. Return value = Rs. 2,700.

Inkway: 8 x Rs. 500 = Rs. 4,000. Less 10% trade discount, Rs. 400. Return value = Rs. 3,600.

Maple Stores: 5 x Rs. 400 = Rs. 2,000.

The chair needs separate treatment because it is an office asset. Leave it out of both merchandise return books.

Step 2: Prepare the Purchases Return Book

A standard format contains Date, Debit Note Number, Supplier, Ledger Folio, and Amount. Ledger Folio, often written L.F., is a reference to the ledger page used when posting. It is not an amount.

The compact version below combines the date and document reference. In a written answer, keep them as separate columns if your question provides that format. Ledger references are omitted because no ledger page numbers have been supplied.

Cedar Stationers: Purchases Return Book, September

Date / note	Supplier	Amount Rs.
6 Sept / DN-21	Paperline Traders	3,000
18 Sept / DN-22	Inkway Suppliers	3,600
30 Sept	Total	6,600

Step 3: Prepare the Sales Return Book

Use Date, Credit Note Number, Customer, Ledger Folio, and Amount in the full format. Here again, the date and note number are combined for easy reading.

Cedar Stationers: Sales Return Book, September

Date / note	Customer	Amount Rs.
10 Sept / CN-11	Bright Academy	2,700
24 Sept / CN-12	Maple Stores	2,000
30 Sept	Total	4,700

Notice that Cedar has issued both debit notes and credit notes during the month. That is perfectly normal. It is a buyer when dealing with Paperline and Inkway, and a seller when dealing with Bright Academy and Maple Stores.

Step 4: Handle the office chair separately

Since this chair was an office asset purchased on credit, its accepted return goes through Journal Proper:

Account	Debit Rs.	Credit Rs.
Seatcraft A/c	4,800
To Furniture A/c		4,800

The chair is unused, and the whole amount is cancelled, so this example needs no depreciation or disposal adjustment.

If Cedar were a furniture dealer and the chair had been bought for resale, the classification would be different. The purpose of the item in this business matters more than its name.

For more classification practice, see which subsidiary book to use.

Ledger Posting: Check the Parties and the Totals Separately

The return books organise the transactions. The ledger shows their effect on each account.

For Cedar’s September example, post the individual purchase returns as follows:

• Paperline Traders: debit Rs. 3,000 on 6 September, with Purchases Return as the particulars.
• Inkway Suppliers: debit Rs. 3,600 on 18 September, with Purchases Return as the particulars.
• Purchases Return Account: credit the monthly total, Rs. 6,600, on 30 September.

For the sales returns:

• Bright Academy: credit Rs. 2,700 on 10 September, with Sales Return as the particulars.
• Maple Stores: credit Rs. 2,000 on 24 September, with Sales Return as the particulars.
• Sales Return Account: debit the monthly total, Rs. 4,700, on 30 September.

The total posting can use particulars such as “Sundries as per Purchases Return Book” or “Sundries as per Sales Return Book”.

Here is a useful independent check. Suppose the balances immediately before these returns were:

Party	Before return	After return
Paperline, payable	Rs. 15,000	Rs. 12,000
Inkway, payable	Rs. 18,000	Rs. 14,400
Bright Academy, receivable	Rs. 13,500	Rs. 10,800
Maple, receivable	Rs. 8,000	Rs. 6,000

Supplier liabilities fall by Rs. 6,600 in total. Customer receivables fall by Rs. 4,700. Those reductions agree with the two return-book totals.

Trade Discount and Cash Discount: A Return Is Not a Payment

For an accepted return at the original invoice terms, reverse the net price originally charged for the returned items. Trade discount was never a separate account entry, so do not open a Trade Discount account on return.

Let’s extend the Bright Academy example. Its original Rs. 13,500 balance represents 60 geometry sets at Rs. 250 each, less 10% trade discount.

After returning 12 sets, it keeps 48 sets:

48 x Rs. 250 x 90% = Rs. 10,800.

That agrees with Rs. 13,500 less the Rs. 2,700 return.

Now suppose Cedar grants 2% cash discount when Bright Academy pays the remaining balance immediately:

• Balance after return: Rs. 10,800.
• Cash discount: Rs. 10,800 x 2% = Rs. 216.
• Bank receipt: Rs. 10,584.

The settlement entry is:

Account	Debit Rs.	Credit Rs.
Bank A/c	10,584
Discount Allowed A/c	216
To Bright Academy A/c		10,800

The Sales Return Book still contains Rs. 2,700. Neither the Rs. 216 discount nor the Rs. 10,584 receipt belongs there.

If payment and a cash discount happened before the return, read the refund terms carefully. Do not assume the refund equals the old invoice amount without considering the settlement already made. Trade discount and cash discount in journal entries explains the distinction further.

Cash Refunds and Other Cases That Need Care

Goods returned for an immediate cash refund

Suppose a customer returns goods bought for cash and Cedar refunds Rs. 900 immediately. The effect is:

Sales Return A/c Dr. Rs. 900; To Cash A/c Rs. 900.

Record the payment through the Cash Book in a standard subsidiary-book exercise. Do not also enter the same cash refund in the Sales Return Book.

If Cedar returns goods previously bought for cash and immediately receives Rs. 1,200, the effect is:

Cash A/c Dr. Rs. 1,200; To Purchases Return A/c Rs. 1,200.

These examples show why a Return account and a Return book are different things. A ledger account can receive postings from more than one book. OpenStax’s worked periodic-inventory entries illustrate both cash refunds and reductions of unpaid balances.

Return accepted now, refund paid later

Keep the return and the later cash movement distinct. If an accepted return creates an amount refundable to a customer, the refund later clears that liability. It should not reduce sales a second time.

For example, crediting a fully paid customer’s account by Rs. 900 creates a Rs. 900 credit balance. A later payment debits that customer’s account and credits Cash or Bank by Rs. 900, clearing the balance.

Goods retained with a price allowance

A customer who keeps scratched goods but receives a reduction in price has received an allowance, not physically returned goods. Follow the account titles and document instructions supplied in the question. A credit note alone does not prove goods moved back. OpenStax distinguishes returns from allowances.

A Short GST Clarification About Debit Notes

The buyer-issued debit note in an ordinary returns-book question is a commercial accounting document. Do not confuse it with a supplier-issued GST debit note.

Under section 34 of the CGST Act, a supplier may issue a credit note for returned goods. A supplier’s GST debit note addresses an original invoice whose taxable value or tax was too low. Thus, “a debit note is always issued by the buyer” is too broad outside the classroom return context. See CBIC’s section 34 reference.

If GST is included in a numerical question, separate the returned goods’ taxable value from the tax adjustment. Do not place the entire tax-inclusive reduction into Purchases Return or Sales Return. The examples here intentionally exclude tax so the two-book logic stays clear.

Six Mistakes You Can Catch Before Submitting

1. Using the wrong viewpoint. “Returned to Ravi” means our purchases return; “returned by Ravi” means our sales return, assuming Ravi is the relevant supplier or customer.
2. Debiting Purchases Return because the document says debit note. Look at the supplier account first. The supplier is debited; Purchases Return is credited.
3. Crediting Sales Return because the document says credit note. The customer is credited; Sales Return is debited.
4. Reversing the whole invoice for a partial return. Multiply the returned quantity by its original net rate.
5. Putting an office asset into a merchandise return book. Ask whether it was held for resale.
6. Posting both a document and its acknowledgment as separate returns. Trace both to the original invoice before entering anything twice.

A short self-check works well: viewpoint, goods, payment status, net value, party posting, total posting.

Try These Questions Yourself

Cover the answers and decide the book, amount, and debit-credit effect before calculating anything else.

1. In Tara Traders’ books, goods worth Rs. 2,400 are returned to its unpaid supplier, Neel. Which return book and note apply?
2. Customer Riya returns goods previously sold on credit for Rs. 1,800. Which account is credited?
3. A shop returns 6 cartons to a supplier. Original list price was Rs. 750 each, less 20% trade discount. What amount enters the Purchases Return Book?
4. A customer returns 4 items originally priced at Rs. 900 each, less successive trade discounts of 10% and 5%. Find the sales return value.
5. Purchase returns during a month are Rs. 3,200, Rs. 1,450, and Rs. 850. What is the monthly total posting?
6. A stationery retailer returns an unused office printer bought on credit for Rs. 12,000. The seller cancels the entire charge. Does it enter the Purchases Return Book?
7. A customer owes Rs. 8,000, returns goods invoiced at Rs. 1,000, then receives 3% cash discount on the remaining amount when paying. Find the return, discount, and receipt.
8. A business receives a credit note for a Rs. 2,500 purchase return it already recorded from its debit note. Should it enter another Rs. 2,500 return?

Answers With Reasons

1. Purchases Return Book, supported by Tara’s debit note. Debit Neel Rs. 2,400 and credit Purchases Return Rs. 2,400. Tara owes Neel less.

2. Credit Riya’s account Rs. 1,800 and debit Sales Return Rs. 1,800. The business issues a credit note and records the transaction in its Sales Return Book.

3. Rs. 3,600: 6 x Rs. 750 x 80%. The Rs. 900 trade discount is deducted in the working, not separately posted.

4. Rs. 3,078: 4 x Rs. 900 x 90% x 95%. Successive discounts are applied one after the other; they do not simply add to 15%.

5. Credit Purchases Return Account with Rs. 5,500. Debit the individual suppliers with their respective amounts.

6. No. Debit the supplier and credit Office Equipment, or the asset account used for the printer, by Rs. 12,000 through Journal Proper.

7. Sales return is Rs. 1,000. The remaining balance is Rs. 7,000; discount is Rs. 210; cash or bank receipt is Rs. 6,790. Check: Rs. 1,000 + Rs. 210 + Rs. 6,790 = Rs. 8,000.

8. No. Match and retain the credit note as confirmation of the existing return, assuming it agrees with the amount already recorded.

Frequently Asked Questions

What is the difference between sales return and purchases return?

It depends on whose accounts you are writing. Goods sent back by our customer are our sales return. Goods we send back to our supplier are our purchases return.

Why is purchases return called returns outwards?

The goods move out of our business and back to the supplier. Start the direction from our premises, not the supplier’s premises.

Why does a buyer issue a debit note for returned goods?

In the standard credit-return example, the buyer debits the supplier’s account to reduce the amount payable. The note communicates that debit. Purchases Return itself is credited.

Why does the seller issue a credit note?

The seller credits the customer’s account for the accepted return. For an unpaid sale, this reduces what the customer owes. Sales Return is debited in the seller’s books.

Is the Sales Return Book a ledger account?

No. It is a subsidiary book used to record relevant return transactions before ledger posting. The Sales Return Account is the ledger account to which the periodic total is debited.

Are returns recorded at list price or invoice price?

For a return accepted at the original terms, use the original net invoice rate for the quantity returned. Deduct the applicable trade discount. If a question specifies a different agreed allowance, use those facts.

Can both businesses issue a note for the same return?

Yes. The buyer may issue a debit note and the seller a corresponding credit note. That does not create two returns in either business’s accounts.

Does a purchases return mean the business has earned income?

No. It reduces recorded purchases. In a basic Trading Account question, purchases less purchases returns gives net purchases; the return is not a fresh sale or separate revenue.

What happens if the customer has already paid?

An accepted return may lead to a cash refund or a credit balance available for refund or future adjustment. Read the terms. An immediate cash refund credits Cash or Bank rather than reducing an unpaid debtor balance.

What is the quickest way to remember the ledger sides?

Ask which unpaid balance becomes smaller. A supplier liability falls with a debit, so Purchases Return takes the credit. A customer receivable falls with a credit, so Sales Return takes the debit. Rebuild the entry from that change whenever the note’s name feels confusing.