AS-L04 — Returns (Sales Returns & Purchase Returns)
Understanding how returned goods are recorded and how returns affect receivables, payables, purchases, and sales.
Learning Objectives
By the end of this lesson students should be able to:
• distinguish between sales returns and purchase returns
• understand the effect of returns on accounts
• record returns using double entry
• calculate revised receivable and payable balances
• answer examination-style questions
Concept Framework
What are Returns?
Returns occur when goods are sent back to the supplier or returned by customers.
Businesses may return goods because:
• goods are damaged
• goods are incorrect
• goods are unsatisfactory
Types of Returns
Sales Returns → goods returned by customers to the business
Purchase Returns → goods returned by the business to suppliers
CORE RULES
| Type of Return | Debit Entry | Credit Entry |
|---|---|---|
| Sales Return | Sales Returns | Receivables |
| Purchase Return | Payables | Purchase Returns |
TRANSACTION LOGIC
Sales return → customer no longer owes full amount → reduce receivable
Purchase return → business no longer owes supplier full amount → reduce payable
Returns reduce the original transaction value.
Worked Examples
Example 1 — Sales Return
A customer returned goods worth £300.
Debit Sales Returns £300
Credit Receivable £300Example 2 — Purchase Return
Goods worth £500 were returned to the supplier.
Debit Payable £500
Credit Purchase Returns £500Example 3 — Combined Transaction
A customer owed £1,200 and returned goods worth £200.
New balance owed:
£1,200 − £200 = £1,000
📌 Additional questions are available in the 🎯 Question Papers + YouTube Explanation section.
Students should practise explanation questions regularly to improve examination performance.
Enrolled students may submit questions from recognised textbooks, past examination papers, or other academic material for expert clarification through the Student Doubt Support facility.
Structured Practice
Level 1 – Concept Check
Define sales returns
Define purchase returns
Level 2 – Application Practice
Explain why returns reduce receivable or payable balances.
Level 3 – Examination Style Question
Goods worth £450 were returned by a customer.
Record the double entry.
(2 marks)
📌 Additional structured questions are available in the 🎯 Question Papers + YouTube Explanation section.
∗ Additional structured questions are available in the Question Papers and YouTube Explanation section. Students should practise regularly and review video explanations for procedural clarity.
Enrolled students may submit questions from recognised textbooks, past examination papers or other genuine academic material for expert clarification through the Student Doubt Support facility.
Proficiency Check
Learn → Unlearn → Relearn
1. Can you distinguish between sales returns and purchase returns?
2. Can you record returns accurately?
3. Can you explain the effect on receivables and payables?
If unsure, revise the worked examples.
Detailed Activity Solutions
Solution to Level 3 question
Level 3 Answer:
Debit Sales Returns £450
Credit Receivable £450
The customer now owes less to the business.
How This Topic Appears in the Examination
This topic commonly appears as:
• journal entries for returns
• adjustment of receivables/payables
• calculation of revised balances
Examiners assess:
• correct classification
• accurate double entry
• understanding of transaction effects
Self-Assessment Checklist
I understand sales returns
I understand purchase returns
I can record return entries correctly
I can adjust receivable and payable balances
I can answer exam questions confidently
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