Define sales return book
Sales returns book is also called returns inwards book. It is used for recording goods returned to us by our customers. The ruling of this book is exactly as for sales day book.
Definition: A sales return is merchandise sent back by a buyer to the seller, usually for one of the following reasons:
- Excess quantity shipped
- Excess quantity ordered
- Defective goods
- Goods shipped too late
- Product specifications are incorrect
- Wrong items shipped
The seller records this return as a debit to a Sales Returns account and a credit to the Accounts Receivable account; the total amount of sales returns in this account is a deduction from the reported amount of gross sales in a period, which yields a net sales figure. The credit to the Accounts Receivable account reduces the amount of accounts receivable outstanding.
The Sales Returns account is a contra account.
A seller can more closely control the amount of sales returns by requiring a sales return authorization number before its receiving department will accept a return. Otherwise, some customers will return goods with impunity, some of which may be damaged and which can therefore not be re-sold.
It is possible that a sales return will not be authorized until a later period than the one in which the original sale transaction was completed. If so, there will be an excessive amount of revenue recognized in the original reporting period, with the offsetting sales reduction appearing in a later reporting period. This overstates profits in the first period and understates profits in the later period.