Financial Management & Cost Accounting

Module 2. Accounting procedure

Lesson 11
PURCHASE RETURN BOOK, SALES RETURN BOOK, BILLS PAYABLE AND BILLS RECEIVABLE BOOKS

11.1 Purchase Return Book

It records all the returns made by the company to the suppliers where the goods were purchases on credit basis.

Purchase Return book

(Return Outward Book)

Date	Particulars	Debit Note No.	L.F	Details(Rs.)	Amount.(Rs.)
2005 June 1	Upasna electronics 4 mobiles @ 6000 each			24,000	24,000
June 14	Jayesh mobile center 2 pieces of charger @ 2500			5000	5000
June 20	Musik Point 100 memory cards @ 200			20,000	20,000
June 25	Modern electronics One mobile handset @ 8000 Less Trade discount 10%			8000 800	7200
	Total				56,200

Return outward Account

Date	Particulars	Amount(Rs.)	Date	Particulars	Amount(Rs.)
			June 30	By sundries as per the return outward book	56,200

Upasna electronics Account

Date	Particulars	Amount(Rs.)	Date	Particulars	Amount(Rs.)
June 1	To Return Outward Account	24,200

Jayesh mobile Center Account

Date	Particulars	Amount(Rs.)	Date	Particulars	Amount(Rs.)
June 14	To Return Outward Account	5000

Musik Point Account

Date	Particulars	Amount(Rs.)	Date	Particulars	Amount(Rs.)
June 20	To Return Outward Account	20,000

Modern electronic Account

Date	Particulars	Amount(Rs.)	Date	Particulars	Amount(Rs.)
June 25	To Return Outward Account	7200

11.2 A Return Inward Book or a Sales Return Book

When sales are made on credit, and recorded in sales Book, by the company, it is also possible that the given customer may return the goods on account of wrong quantity, damage, defects etc. When the goods are returned by these customers, they are recorded in a special book called “Sales Return Book”. The procedure to be followed at the time of accepting the goods, returned by the customers is-

a) Prepare a credit note:

A note is prepared which indicate the name, code, dimensional etc. of the goods returned by the customers. It also contains the “value” of goods returned by the customers. Further, It indicates that the goods returned by the customer, have been accepted by the company, and subsequently, the customer’s account will be “credited” by the amount of goods returned by him.

b) Posting of sales return Book:

Clearly, the individual entries of the sales return Book. are “credited” to the respective customers account.(And the total of the sales return book is to be periodically debited to the “sales account”)

The ruling of sales return book is similar follows

Date	Particulars	Credit Note No.	L.F	Details(Rs.)	Amount(Rs.)

Consider the following Illustration

Illustration 11.1

June 1: returned by “Musik center”

4 pieces of Tape recorder costing Rs.2000 each.

June 14: returned by J.B. electronics

3 Color T.V @ Rs. 15,000 each.

Sales Return Book

Date	Particulars	Credit Note No.	L.F	Details(Rs.)	Amount(Rs.)
June 1	Musik center 4 pieces of Tape recorder @ 2000 each			8000	8000
June 14	J.B. electronics 3 color T.Vs / Rs. 15,000 each			45,000	45,000
	Total				53,000

These figures to be credited to accounts of individual customers and the total figure to be debited to the sales return Account.

Sales Return Account

Date	Particulars	Amount(Rs.)	Date	Particulars	Amount(Rs.)
June 30	To sundry debtors Account	53,000

Sundry debtors Account

Date	Particulars	Amount(Rs.)	Date	Particulars	Amount(Rs.)
			June 30	By sales return Account	53,000

Debtors Ledgers

Musik center Account

Date	Particulars	Amount(Rs.)	Date	Particulars	Amount(Rs.)
			June 1	By sales return Account	8000

J.B. electronics Account

Date	Particulars	Amount(Rs.)	Date	Particulars	Amount(Rs.)
			June 14	By sales return Account	45,000

11.3 Bills Receivable Book and Bills Payable Book

11.3.1 Bills receivable book

Bills receivable books contains all the information regarding the bills of credit sales, in which the sales have been made to the customer, but the customer is yet to pay the bill. Hence, it denotes the bill-outstanding or bill receivable from the customer. In effect, what the customer has done, in that he receives the bill and, puts his stamp and signature on the bill indicating that, he accepts the bill(along with the terms and conditions mentioned there in) and promise to pay the bill by the due date. In practice, however, these are a large number of credit sales (and hence large number of bills to be collected). In order to keep full information regarding the amount of bill, date of acceptance, date of maturity, procedure to be followed in case of default etc. a separate book “Bills Receivable Book” is prepared. The total of the bills receivable book is then periodically transferred to the bills receivable account.

11.3.2 Bills payable book

As in the case of bills receivable book, we can prepare a bills payable book, which keeps records of all the bills to be paid by the company by the due date. Hence, it records all the bills which are accepted by the company and promised to pay by the company by the due date. The total of the bills payable book is transferred to the bills payable account.

Role of Journal Proper

As we have seen that a business firm generally prepares

a) Cash Book

b) Purchase Book

c) Purchase Return Book

d) Sales Book

e) Sales Return Book

f) Bills receivable Book

g) Bills Payable book

Still, there are some transactions, which may not find a place in any of the books mentioned above. In general, for those transactions, for which no special book is maintained to record them, are then recorded in the Journal Proper. Hence, such transactions have to be journalized. Hence, the Journal is used to record all the “RESIDUAL” entries/transactions of the firm.

Generally, the type of entries to be journalized is as given below:

1) Opening entries:

Opening entries are used, at the beginning of the financial year to open the book, recording the assets and liabilities.

Example:

Date	Particulars	Debit	Credit
	Asset Account Dr To liabilities account To Capital account (Being the opening entry for year...)

2) Closing entries:

At, the end of the year, the profit and loss account is to be prepared. It can be prepared by the nominal accounts to profit and loss account, this is done by closing entries. Now days, closing entries are often avoided. The closing is done in the ledger itself and the destination of the final balances is indicated in the ledger itself as:” Transfer to Trading account” or as “transfer to profit and loss account” etc.

3) Rectification entries:

If any error is made, it can be rectified by passing a journal entry.

4) Transfer entries:

If some amount is to be transferred from one account to another account, this is done by recording it in a journal.

5) Adjustment entries:

At the time of preparation of final accounts, certain type of transaction/entries are to be brought into the book.

Examples of such entries are:-

a. Entries for outstanding expenses

b. Entry for prepaid expenses

c. Entry for depreciation

d. Entry for accrued incomes

e. Entry for provision of bad and doubtful debts etc.

6) Entry for dishonor of bills:-

If any, entity which had accepted a bill, but was unable to pay the amount by the due date, a journal entry in used to record the non-payment of bill.

7) Miscellaneous entry:-

a. Credit purchase(or sale) of goods-not-dealt-in by the firm

Example: Furniture, Computer, Other assets.

b. Effect if accidents such as loss of property due to fire.

c. A debtor becoming insolvent, hence the amount becomes irrecoverable.