What is a purchase return and how do you record it?

• A. A return of goods to a supplier; Dr Trade Creditors 100; Cr Purchase Returns 100.
• B. A return of goods to a supplier; Dr Purchase Returns 100; Cr Trade Creditors 100.
• C. A return of goods to a supplier; Dr Purchases 100; Cr Trade Creditors 100.
• D. A return of goods to a supplier; Dr Trade Creditors 100; Cr Purchases 100.

Answer: (B)

When you return goods to a supplier, you need to reduce what you owe them and also reflect the value of the goods you’ve returned as a reduction in purchases. The Purchase Returns account acts as a record of those returned items, so increasing it helps show how much of your purchases has been reversed.

So the correct entry is to debit the Purchase Returns account for the value of the return and credit Trade Creditors for the same amount. Debiting Purchase Returns records the increase in returns, while crediting Trade Creditors decreases the amount you owe to the supplier.

This keeps your records consistent: the liability to the supplier falls, and the total purchases for the period are reduced by the amount of the return via the Purchase Returns figure, which, when calculating net purchases, is subtracted from the gross purchases.