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

returns by SW Traders to the consignee 5,000.

Dr/Cr - Transaction analysis

A transaction of return 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 - Consignment Debtors a/c

  Personal
  ↓
  Credit
  {the benefit giver}

  The buyer returning the goods has to be paid back the sale value. The consignment debtors returning the goods would be the benefit givers.

  Note

  • Credit - Individual Consignment Debtor a/c

    To derive greater information relating to consignment debtors.

  • Credit - Consignee a/c

    To derive lesser information relating to consignment debtors.

Journal

Consignment a/c To Consignment Debtors a/c	Dr	5,000	5,000
[For the value of goods returned by the buyer to the consignee]

• Opting to derive greater information

  Consignment a/c To SW Traders a/c

  Dr

  5,000

  5,000

• Opting to derive lesser information

  Consignment a/c To Consignee a/c

  Dr

  5,000

  5,000

Ledger

One of the following sets of accounts will appear in the ledger depending on the choice made relating to the quantum of information that the accounting system has to provide.

• Normally

  Consignment a/c

  Dr Cr
  Particulars	Amount	Particulars	Amount
  To Consignment Debtors	5,000

  Consignment Debtors a/c

  Dr Cr
  Particulars	Amount	Particulars	Amount
  		By Consignment	5,000

• Opting to derive greater information

  Consignment a/c

  Dr Cr
  Particulars	Amount	Particulars	Amount
  To SW Traders	5,000

  SW Traders a/c

  Dr Cr
  Particulars	Amount	Particulars	Amount
  		By Consignment	5,000

• Opting to derive lesser information

  Consignment a/c

  Dr Cr
  Particulars	Amount	Particulars	Amount
  To Consignee	5,000

  Consignee a/c

  Dr Cr
  Particulars	Amount	Particulars	Amount
  		By Consignment	5,000

Transaction analysis

A transaction of return is a reversal of the sale transaction.

• Debit - Consignor a/c

  Personal
  ↓
  Debit
  {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.

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

• Credit - SW Traders a/c

  Personal
  ↓
  Credit
  {the benefit giver}

  Since the goods are being returned, the sales value has to be refunded.

  The consignment debtor returning the goods, would be the benefit giver.

  Note

  • Credit - Combined Consignment Debtors a/c

    To derive greater lesser information relating to consignment debtors.

Journal

Consignor a/c To SW Traders a/c	Dr	5,000	5,000
[For the value of goods returned by SW Traders to the consignee]

• Opting to derive lesser information

  Consignor a/c To Consignment Debtors a/c

  Dr

  5,000

  5,000

Ledger

One of the following sets of accounts will appear in the ledger depending on the choice made relating to the quantum of information that the accounting system has to provide.

• Normally

  Consignor a/c

  Dr Cr
  Particulars	Amount	Particulars	Amount
  To SW Traders	5,000

  SW Traders a/c

  Dr Cr
  Particulars	Amount	Particulars	Amount
  		By Consignor	5,000

• Opting to derive lesser information

Consignor a/c

Dr Cr
Particulars	Amount	Particulars	Amount
To Consignment Debtors	5,000

Consignment Debtors a/c

Dr Cr
Particulars	Amount	Particulars	Amount
		By Consignor	5,000

Since consignee is required to collect the dues from the consignment debtors, it would be appropriate for him to maintain distinct consignment debtors accounts as it would help him to obtain information relating to, the amounts outstanding and collections, readily with respect to each.