Glossary · Also called Sales returns
Returns inwards
Goods that customers send back to the business.
What it means
Goods previously sold that are returned by customers; deducted from revenue.
Example
A customer returns RM200 of goods, reducing revenue by RM200.
Why it matters
They reduce revenue in the income statement and the customer's balance.
In practice
Returns inwards, also called sales returns, are recorded first in the returns inwards day book. They are then posted to the debit side of the returns inwards account in the nominal ledger, because they reverse income the business earned. In the income statement the total is deducted from sales to give net sales at the top of the trading section. This directly reduces gross profit. For each return, the double entry debits returns inwards and credits the customer's account, cancelling the amount owed.
Suppose a customer bought goods for RM500 on credit and sends back damaged items worth RM80. The business debits returns inwards RM80 and credits the customer RM80. RM420 is still receivable.
Students often confuse returns inwards with returns outwards. Returns inwards come back from customers and are set against sales. Returns outwards go back to suppliers and are set against purchases. A quick check is to ask who returned the goods. Mixing the two misstates both sales and purchases.
If returns and the day books still confuse you, one of our teachers can go through a mixed set of documents with you. Book a trial class.
Related terms
Definitions here are general accounting explanations for study. For your board's exact wording, see its official syllabus via Sources.
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