Basic Accounting Short Course- Small Business Accounting Training- Integrating Sales, Purchases & Returns

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Journals and Ledgers example

Sales Return and Purchase Return Journals

Let’s first talk about the sales return journal. Any inventory that is returned by the customers to us is first recorded in this journal. When we agree to accept the return of goods, we issue our customers with a credit note. This note no. is recorded in one of the columns of the sales return journal.

Following is an excerpt from a sales return journal:

Sales return journal excerpt

From here every entry is transferred to the personal accounts of the customers in the sales ledger. Their personal account is credited with the relevant amount. At the end of the period, the total of sales return journal is transferred to the sales return account in the general ledger.

Purchase return journal also works on the same principles of sales return journal. The only difference is that this time its us returning the inventory. When our supplier accepts the return of inventory, we issue them with a debit note. This note no. is then entered in the purchases return journal. Following is an excerpt from a purchase return journal:

Purchase return journal excerpt

Just like sales return, all the entries of purchase return are taken from here to the personal accounts of the suppliers, which are found in the purchases ledger. The relevant of our supplier is debited with the relevant amount.

Master Example illustrating Sales Journal, Purchases Journal, Sales Ledger, Purchases Ledgers and accounting for returns

Following are the inventory related transactions of Andrew and Co. Ltd. You are required to record these transactions in the relevant books and ledgers and then post the total of sales, purchases and returns in the relevant accounts in the general ledger:


Aug. 1 Credit purchases: Smith $3000 (invoice no. 230), Marshall $1000 (invoice no. 231) and Adam $4500 (invoice no. 3402).

Aug. 5 Credit Sales: James $600 (invoice no. 101), Jonathan $200 (invoice no. 102) and Claire $350 (invoice no. 103).

Aug. 10 Sold inventory on credit to Morgan for $500, including 10% trade discount, invoice no. 104.

Aug. 15 Returned inventory: Smith $500 (debit note 1) and Adam $350 (debit note 2)

Aug. 25 Morgan returned the entire inventory that was sold to him on Aug. 10 (credit note 15).

Aug. 28 Inventory returned to us by James $75 (credit note 16).

Let’s first start with the journals, as they are the first places where these transactions will go.

Sales Journal

Purchases journal

Sales return journal

Purchase return journal

Next, let’s try to make the personal accounts in the relevant ledgers.

Sales ledger account for James

Sales ledger account for Jonathan

Sales ledger account for Claire

Sales ledger account for Morgan

Now, let’s see how purchases ledger looks like.

Purchases ledger account for Smith

Purchases ledger account for Marshall

Purchases ledger account for Adam

Finally, let’s draw the sales, purchases and returns accounts in the general ledger.

Sales account in the general ledger 1

Purchases account in the general ledger

Sales return account

Purchases return account

This is all that you need to do when required to record credit purchase or sale or return of inventory.

We still have to cover how to record any cash transactions or other transactions that do not involve inventory. We will be looking at the cashbook, general journal and general ledger in the next section of the accounting short course for small businesses.