Purchase Return, manage Inventory in right way.
What is Purchase Return?
Purchase Return (PR), also known as product return or Supplier return, is a crucial aspect of business transactions where a buyer returns goods to a supplier due to various reasons such as defects, inaccuracies, or mismatched orders. It plays a pivotal role in maintaining a healthy supplier-customer relationship and ensures that businesses receive the quality products they need.
It’s similar to Sales Return where the Stock is sent from Customer and we receive, in Purchase Return (PR), we Customer, send the material back to vendor. So we reduce the stock from our inventory.
When we do returns, we need to consider few factors into decision process. Because in few B2B cases, you can’t claim the TAX amounts, in case return happens after 30 days.
- What is the refund policy and refund process
- Is partial refund available – Sometime, we want to return only 2 Nos of 10 Nos that we received.
- How many business days within which we much return items?
- Is it Online Purchase or offline purchase?
- What happens to the payment method in which you did the payments? This is for Online Purchase as credit card might have been used to do the payment.
- Whats the process in case, you received, wrong item?
What is an Example of a Purchase Return?
Imagine a scenario where a retailer orders a batch of clothing items from a supplier. However, upon inspection, they discover that a portion of the items arrived with incorrect sizes. In such a case, the retailer initiates a return to send back the incorrect items and receive the correct ones. This process not only rectifies the situation but also reaffirms the retailer’s trust in the supplier.
What is Purchase Return Formula?
The purchase return formula calculates the total value of returned goods in relation to total purchases. It can be represented as:
PR Percentage = (Total Value of PR / Total Purchases) × 100
For instance, if a business makes purchases worth $30,000 and experiences PRs amounting to $1,500, the purchase return percentage would be (1500 / 30000) × 100 = 5%.
How are Returns Calculated?
PRs are calculated by subtracting the value of returned items from the total purchase cost. This provides a clear picture of the net purchase amount after accounting for the returns.
Effective management of PR involves timely communication with suppliers, proper documentation, and adjusting financial records accurately.
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Why is Purchase Return an Expense?
Purchase returns are considered as expenses because they represent a reduction in the overall cost of goods purchased. When goods are returned to suppliers, it affects the cost of goods sold and impacts the business’s profitability. Treating returns as expenses allows businesses to accurately reflect their financial health and manage their costs effectively.
What is Purchase Return Note?
A Return Note is a formal document that acknowledges the return of goods to a supplier. It includes essential details such as the reason for return, the quantity and description of returned items, the original purchase invoice number, and any adjustments made to the supplier’s account. This note ensures transparency in the returns process and helps maintain proper records.
Purchase Return Journal Entry
The journal entry for a return involves debiting the accounts payable or supplier’s account to reflect the reduction in the amount owed and crediting the inventory account to account for the returned goods. This entry accurately updates the financial records and maintains the integrity of the business’s accounting system.
DB – Supplier Accounts Payable
Cr – Inventory Account.
In conclusion, understanding and effectively utilizing the concept of PRs can greatly benefit your business by ensuring quality control, maintaining strong supplier relationships, and managing costs. By implementing proper PR practices, businesses can enhance their credibility, streamline operations, and foster long-term partnerships within the supplier network.