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Purchase returns day book

This step revisits the topic of purchase returns and illustrates how the returns day books help to exercise control.
A stamp that would be used by hand. It has stamped the word

In the example of Nyah, we just focused on sales and sales returns transactions. We just need to remember that the same rules apply to purchases also.

So a quick reminder of the double entries for purchases and purchase returns:

When a purchase is made:

Dr purchases X net amount
Dr VAT X VAT amount
Cr payables (PLCA) X gross amount

When a purchase is returned:

Dr payables (PLCA) X gross amount
Cr VAT X VAT amount
Cr purchase returns X net amount

So we know where there are purchases, there can be returns.

So to summarise what happens, anything posted to the purchase day book is then posted to two places:

  1. Double entry to the general ledger
  2. Individual memorandum ledgers are updated.

The same will need to happen with the purchase returns day book – after all, it’s the supplier we bought on credit from, who we are returning the goods to.

So when a purchase return is posted to the purchase returns day book, it will also need to be posted to the same two places:

  1. Double entry to the general ledger
  2. Individual memorandum ledgers are updated.
Have a look at the PDF below called ‘Recording Credit Purchases – an Illustration’ to see the purchase day book and purchase returns day book in action.
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Controls within an Accounting System

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