Return of goods is something that is normal in business. Just like sales returns in relation to trading activity, there is a possibility of the stock sold being returned to the consignee.

The buyer may return the goods on account of the goods being defective, of inferior quality, in excess of their need, etc. They may have bought the goods from the consignee for cash or on credit.

Example

1. returns by a customer who has bought in cash and not yet repaid 1,000.
2. returns by a customer who has bought in cash and is immediately repaid 500.

Dr/Cr - Transaction analysis

This is a transaction that is a reversal of a sale transaction.

The sale value relating to the goods being returned has to be paid back to the buyer.

• Debit - Consignment a/c

  Nominal
  ↓
  Debit
  {all expenses & losses}

  The income in Consignment a/c, that was considered to have accrued through sales, should now be written back.

  Writing back income has the same effect as incurring an expenditure.

• Credit -

  The account to be credited is dependent on whether the buyer has been repaid or not.

  • Paid - Consignee a/c

    Personal
    ↓
    Credit
    {the benefit giver}

    If the buyer has been repaid by the consignee, he would be the benefit giver and he would have to be reimbursed the amount.

  • Unpaid - Refund Dues a/c

    Personal
    ↓
    Credit
    {the benefit giver}

    The buyer who has not been repaid, would be the benefit giver.

    Refund Dues a/c is a personal account and is an equivalent of a creditor.

    Note

    • To derive lesser information

      Credit - Consignment Debtors a/c

      Where the consignor intends to derive lesser information relating to consignment, he may use the Consignment Debtors a/c itself to record the refund due also. The Consignment Debtors a/c in such a case reveals the net amount due on account of credit sales and refunds due towards cash sale returns taken together.

      This will not be possible where the consignment debtor is maintaining individual consignment debtors accounts. Moreover, it is an indication of his intention to derive greater information relating to consignment debtors.

Journal

1. cash sale returns not yet repaid 1,000.

   Consignment a/c To Refund Dues a/c	Dr	1,000	1,000
   [For the value of goods returned to the consignee by the buyer who has purchased for cash, refund pending]

   • Opting to derive lesser information

     Consignment a/c To Consignment Debtors a/c

     Dr

     1,000

     1,000

2. cash sale returns repaid 500.

   Consignment a/c To Consignee a/c	Dr	500	500
   [For the value of goods returned to the consignee by the buyer who has purchased for cash and the amount refunded]

Ledger

Consignment a/c

Dr Cr
Particulars	Amount	Particulars	Amount
To Refund Due To Consignee	1,000 500

Refund Due a/c

Dr Cr
Particulars	Amount	Particulars	Amount
		By Consignment	1,000

Dr/Cr - Transaction analysis

When the due is actually paid by the consignee, an entry indicating the payment has to be recorded.

The transaction is unlike expenses paid by the consignee. The effect would be the opposite of cash collection from the debtors.

• Debit - Refund Due a/c

  Personal
  ↓
  Debit
  {the benefit receiver}

  Payment being made towards Refund Due a/c balance, makes it the benefit receiver.

  Note

  • To derive lesser information

    Debit - Consignment Debtors a/c

    Where the consignor has chosen to maintain lesser information relating to consignment by using Consignment Debtors a/c to record the refund due also, where it is possible, the same account has to be used while recording the payment made.

• Credit - Consignee a/c

  Personal
  ↓
  Credit
  {the benefit giver}

  Consignee making the payment towards refund, would be the benefit giver and would have to be reimbursed the amount.

  The mode of payment would be irrelevant here.

Journal

1. refund dues paid by the consignee.

   Refund Due a/c To Consignee a/c	Dr	1,000	1,000
   [For the amount paid towards cash sale refund dues by the consignee]

   • Opting to derive lesser information

     Consignment Debtors a/c To Consignee a/c

     Dr

     500

     500

Ledger

Consignee a/c

Dr Cr
Particulars	Amount	Particulars	Amount
		By Refund Due	1,000

Refund Due a/c

Dr Cr
Particulars	Amount	Particulars	Amount
To Consignee	1,000

Net Effect for minimal information

The net effect of the journal entries recording the transactions of sales returns and subsequent refund would be the same as the transaction of sales returns and immediate refund.

	Consignment	Refund Due	Consignee
1) 2)	+1,000	−1,000 +1,000	−1,000
Net	+1,000	0	−1,000
Dr(+)/Cr(−)

Consignment a/c To Consignee a/c	Dr	1,000	1,000
[For the refund relating to the cash sale return on consignment paid]

Where the consignor receives the information from the consignee periodically through account sales, the consignor may choose to record only the net effect by clubbing the two transactions.

Dr/Cr - Transaction analysis

This is a transaction that is a reversal of cash sales with a modification where the refund is not yet paid.

• Debit - Consignor a/c

  Personal
  ↓
  Debit
  {the benefit receiver}

  The consignor being the owner of the goods returned, would be the benefit receiver.

  Since the sales value, at the time of sale, has been considered as amount due to the consignor, it should be written back as no longer due.

• Credit -

  The account to be credited would be dependent on whether or not the refund due is paid.

  • Paid -

    The account to be credited would be dependent on the mode of payment

    • Cash a/c

      Real
      ↓
      Credit
      {what goes out}

      Cash goes out as payment for expenses.

    • Bank a/c

      Personal
      ↓
      Credit
      {the benefit giver}

      Amount goes out from the bank, making Bank the benefit giver.

  • Unpaid - Refund Dues a/c

    Personal
    ↓
    Credit
    {the benefit giver}

    The buyer who has not been repaid, would be the benefit giver.

    Refund Dues a/c is a personal account and is an equivalent of a creditor.

Journal

1. cash sale returns not yet repaid 1,000.

   Consignor a/c To Refund Dues a/c	Dr	1,000	1,000
   [For the value of goods returned to the consignee by the buyer who has purchased for cash, refund pending]

2. cash sale returns repaid 500.

   Consignor a/c To Cash a/c	Dr	500	500
   [For the value of goods returned to the consignee by the buyer who has purchased for cash and the amount refunded]

Ledger

Consignor a/c

Dr Cr
Particulars	Amount	Particulars	Amount
To Refund Due To Cash	1,000 500

Refund Due a/c

Dr Cr
Particulars	Amount	Particulars	Amount
		By Consignor	1,000

Dr/Cr - Transaction analysis

The payment of refund due is like any other payment.

• Debit - Refund Due a/c

  Personal
  ↓
  Debit
  {the benefit receiver}

  Payment being made towards Refund Due a/c balance, makes it the benefit receiver.

• Credit -

  The account to be credited would be dependent on the mode of payment

  • Cash a/c

    Real
    ↓
    Credit
    {what goes out}

    Cash goes out as payment for expenses.

  • Bank a/c

    Personal
    ↓
    Credit
    {the benefit giver}

    Amount goes out from the bank, making Bank the benefit giver.

Journal

1. refund dues paid by the consignee.

   Refund Due a/c To Cash a/c	Dr	1,000	1,000
   [For the amount paid towards cash sale refund dues]

Ledger

Refund Due a/c

Dr Cr
Particulars	Amount	Particulars	Amount
To Cash	1,000

Since the consignor has been recorded as being due by debiting his account at the time of recording the due, his account will not be affected by this transaction.

Net Effect - less information

The net effect of the journal entries recording the transactions of sales returns and subsequent refund would be the same as the transaction of sales returns and immediate refund.

	Consignor	Refund Due	Cash
1) 2)	+1,000	−1,000 +1,000	−1,000
Net	+1,000	0	−1,000
Dr(+)/Cr(−)

Consignor a/c To Cash a/c	Dr	1,000	1,000
[For the refund relating to the cash sale return on consignment paid]

Where a single transaction is recorded, the information relating to the fact that there is a time gap between refund and repayment would be missing from the books of accounts.