In the books of M/s Shyam Limited, Rs. 1,000 being purchase returns was posted to the purchase day book. What is the correction entry to be passed in the books of account? (amount in Rs.)

In the books of M/s Shyam Limited, Rs. 1,000 being purchase returns was posted to the purchase day book. What is the correction entry to be passed in the books of account? (amount in Rs.) Correct Answer <p>Creditor A/c Dr 2,000</p> <p>To Purchase return A/c 1,000</p> <p>Purchase A/c Dr 1,000</p>

Key Points

• Purchase book or a purchase day book is a subsidiary book. It contains the record of all credit purchases made. The cash goods purchases are recorded in the cash book. A Purchase book holds the record for the purchase of goods only and not purchases of assets.
• Purchase Return Book when the goods purchased on credit are returned to the supplier, the entries for such transactions are recorded in the Purchase return book or the purchase returns day book. Goods purchased are sometimes returned by the buyer on account of a defect or low quality. A separate subsidiary book is maintained for these purchase returns since these returns are not deducted from the purchases in the Purchase book.

3 golden rules

• debit the receiver, credit the giver
• debit what comes in, credit what goes out
• debit all the expenses and losses, credit all the incomes and gains.

Reason for debit and credit:

• Creditors A/c - Personal A/c, we are liable to pay creditors. We are returning the goods sold by the creditor to us therefore it’s, debited.
• Purchase A/c - Nominal A/c – Here Purchase account was wrongly debited therefore it’s, credited back.
• Purchase Return A/c - Nominal A/c- It's opposite to purchase account, here goods are going out from business therefore it’s, credited.

Important Points

Journal entry

CreditorsA/c Dr 2000

To Purchase A/c 1000

To Purchase Return A/c 1000

Here, in the given question goods returned worth Rs. 1000 was recorded as purchase it means creditors were wrongly credited by RS. 1000 and Goods worth Rs. 1000 were returned back to the creditor for which creditor was not debited, therefore in the above entry creditor will be debited by a total of RS. 2000. Also while wrongly recording goods returned as goods purchase we wrongly debited Purchase A/c by Rs. 1000 which is now to credited back and correct entry for purchase return for goods returned worth Rs. 1000 is to be passed for which Purchase Return Account is to be credited by Rs. 1000.