Purchase Returns Account (Returns Outwards)

Why is the Purchase Returns Account (Returns Outwards) not redundant?

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This question concerns the Purchase Returns Account (in double entry accounting).

I think I understand how it operates and the circumstances under which one is created. However, I don't see why it's not redundant.

Suppose I (the business) purchase something that contributes to expenses but then I return it and receive a refund. Why would I not just debit Accounts Payable (or Cash) and credit the relevant Expenses account instead of using Purchase Returns?

This seems particularly relevant if I am also categorising my expenses (e.g. if I have several expenses accounts for different categories like "office equipment", "travel" etc.). Crediting the relevant Expenses account (instead of using Purchase Returns) means I still get an accurate net total in each Expenses account at the end of the period, whereas using Purchase Returns, I'd just end up with one total for returns without the information about how each Expense category is affected (unless I create a Purchase Returns account for each Expense account which would mean even more redundancy). 

Insight much appreciated

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paddle steamer
By DJKL
23rd Sep 2020 11:41

It might control the process/act as an account you can monitor- when you initially make the adjustment you do so on your own before you have received a credit note from your supplier, you might say leave items pending in Purchase Returns until you receive the actual CN when you adjust them out, in effect using the account balance as a check on which CNs you have received and which are still pending.

You might, if purchases of goods for resale, also want it to monitor the amount of say faulty stock you have been receiving (might impact which suppliers you use), if you just bury the CNs against purchases you lose that data.

Accounting systems are designed to impart control and provide data, therefore one can design them for that purpose, there being no one size fits all.

For instance I create some weird and wonderful nominals to control costs per property incurred re services provided to tenants with other accounts showing rebillings to tenants by property, in the final accounts they all get thrown together but I like to have the analysis to be able to focus on where and why non recovered costs are arising.(Department posting/project posting might give me the same result)

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John Toon
By John Toon
23rd Sep 2020 11:44

Purchase return accounts are rarely used but are relevant to businesses selling/buying goods.

Historically a delivery/return of goods would occur before the relevant invoice/credit note was issued/received thus creating a timing difference.

This happens much less as businesses tend to issue invoices/credit notes in place of or along with delivery/returns notes or by electronic means and as a result timing differences may not occur or may be relatively minimal - a matter of hours or possibly a day, compared to many days in the good old days of snail mail and hand written invoices etc.

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Routemaster image
By tom123
23rd Sep 2020 11:55

Agree with the others. Depends what you need to monitor. The big problem with returns is suppliers are not consistent.

ie - some may send new parts on the van the next day - in which case the storeman just keeps the old stock to hand over. Paperwork stays the same as before.

Others will receive the stock with a returns number that they provide, and then assess for warranty or other issues.

Don't overcomplicate your system if you don't need to - however, to your point about expenses - for purchases you are tending to be dealing with the balance sheet stock accounts, rather than posting directly to P&L, with modern systems - so your purchases and returns will generally wash out to the same place.

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By benhopeartist
23rd Sep 2020 12:20

Good stuff! Thanks everyone :)

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