If you are studying accounting, you may see the question “return outward is also known as” in a worksheet or exam. The answer is purchase return. It means goods a business sends back to the supplier after buying them.
For example, a shop may order 50 shirts but find that five have damaged buttons. If the shop sends those five shirts back, it has made a purchase return. The goods are moving out of the shop and going back to the seller.
The return can reduce the amount owed to a supplier and change purchase records. Clear documents help both sides track the transaction.
What Does Return Outward Mean in Accounting?
Return outward, more commonly written returns outward, refers to goods returned by a buyer to a supplier. These are items the business previously purchased for resale or normal trading activities.
The name describes the direction of the goods. They move outward from the business that bought them. The same event appears as a sales return in the supplier’s records because the supplier is receiving goods back from its customer.
In traditional bookkeeping, credit purchases returned to suppliers are entered in a purchase returns book, also called a returns outward book or purchase returns journal. Returns of cash purchases and fixed assets may need different records.
Why Do Businesses Return Purchased Goods?
Businesses return goods for several reasons:
- Products arrive broken or faulty.
- The supplier sends the wrong size, color, or model.
- The quantity delivered is greater than the quantity ordered.
- Items fail an agreed quality check.
- Goods arrive too late for their intended use, and the supplier accepts the return.
Check the supplier’s return terms first. A replacement or price reduction may be offered instead.
How a Purchase Return Works
A purchase return usually begins when the buyer notices a problem with delivered goods. The business compares the delivery with its order and invoice, then contacts the supplier.
The buyer records the items, quantities, and return reference. The supplier confirms the adjustment.
If the invoice remains unpaid, the approved return normally reduces the amount the buyer owes. If payment has already been made, the supplier may issue a refund or credit for a future order, depending on the agreement.
Debit Notes and Credit Notes
In traditional bookkeeping examples, the buyer often sends a debit note to tell the supplier that the supplier’s account is being reduced by the value of the returned goods.
The supplier may issue a credit note confirming the reduction in the invoice amount. These documents help both parties match the return to the original purchase.
Documents and tax rules vary by country.
Purchase Return Journal Entry With an Example
Imagine a stationery shop buys notebooks worth $1,000 on credit. After delivery, it finds that $200 worth are damaged. The supplier accepts them back.
Under a traditional periodic inventory system, the initial credit purchase is recorded as:
Debit Purchases: $1,000
Credit Accounts Payable: $1,000
When the shop returns the damaged notebooks, the entry is:
Debit Accounts Payable: $200
Credit Purchase Returns: $200
The debit reduces the amount owed to the supplier. The credit records the decrease in purchases. The shop now owes $800, assuming there are no taxes, shipping adjustments, or other charges.
What Changes Under a Perpetual Inventory System?
Some businesses track stock continuously rather than using a separate purchases account. Under a perpetual system, purchased goods are generally recorded in inventory.
In that case, the return normally credits Inventory instead of a separate Purchase Returns account. Accounts Payable is still debited for an unpaid credit purchase. The aim is the same: remove the returned goods from stock and reduce the related liability.
Learning which inventory system an exercise uses is essential. Otherwise, two correct methods may appear to conflict.
Returns Outward vs. Returns Inward
These terms sound similar, yet they describe opposite movements from the point of view of one business.
| Returns Outward | Returns Inward |
|---|---|
| Goods sent back to a supplier | Goods received back from a customer |
| Also called purchase returns | Also called sales returns |
| Reduces net purchases under periodic accounting | Reduces net sales |
| Often linked to a debit note from the buyer | Often linked to a credit note from the seller |
Think about a clothing store. If it sends a faulty jacket back to its wholesaler, that is a return outward for the store. If someone who bought a jacket from the store brings it back, that is a return inward.
The same goods may be part of two different sets of accounts. Each business records the transaction from its own position.
Where Are Returns Outward Recorded?
In a traditional manual accounting system, the purchase returns journal keeps track of goods returned from credit purchases. Entries usually include the date, supplier’s name, document number, and value of the goods.
The business then posts the return to the supplier’s account and the relevant general ledger account. Accurate posting ensures the supplier balance agrees with the underlying documents.
Accounting software often uses supplier credits instead of paper journals, but the purpose remains the same.
The Institute of Cost Accountants of India’s financial accounting study material also identifies the purchase returns journal as the Returns Outward Day Book.
How Returns Affect Net Purchases
Under the periodic method, the value of returns is deducted from gross purchases when calculating net purchases.
For example, if a business purchases $8,000 of goods and returns $500, its net purchases are $7,500 before any other relevant adjustments, such as purchase discounts or freight costs.
This is why returns need their own clear record. Missing an approved return could make purchases and supplier balances appear too high.
Mistakes to Avoid When Recording Returns
A few basic checks can prevent confusion:
- Do not mix up the buyer and seller. Purchase returns belong to the buyer’s books, while sales returns belong to the seller’s books.
- Use the correct amount. Record the accepted value of the goods returned, not automatically the full original invoice.
- Keep the source documents. Match the return with the purchase invoice and any debit note or credit note.
- Check the inventory method. A perpetual system and a periodic system can use different account names.
- Review tax adjustments. Sales tax, VAT, or GST treatment depends on local rules and the type of transaction.
A supplier may reject some returned items, so the business should not reduce its balance without a sound basis. Regular account checks help identify differences before the next payment is made.
Conclusion
So, if an accounting question asks “return outward is also known as,” the answer is purchase return. It describes goods a buyer sends back to a supplier, commonly because the items are damaged, incorrect, or unsuitable.
Remember the direction: outward means back to the supplier; inward means back from the customer. Once that difference is clear, the related journal entries and supplier balances are easier to follow.