Debit and Credit Ledger selection on Sales Return of Trading Goods

In a Trading Business,

Due to reasons like defective goods,excess supply of goods,supply out of order etc. Debtors/Customers/Buyers want to return the goods to the Supplier.

Now we are going to discuss about Debit and Credit Ledger selection on Sales Return of Trading Goods with example.

When goods are returned by the Buyer/Debtor/Customer,which has already sold charging Indirect Tax like GST/VAT etc.

The Debit Ledger Accounts are :

1. Sales Return A/c

2. GST/VAT A/c

The Credit Ledger Account is :

1. Sundry Debtors A/c

In case of Cash transaction for Sales Return,

1. Sales Return A/c shows Debit effect.

2. GST/VAT A/c shows Debit effect.

3. Cash A/c (in place of Name of the Buyer/Debtor/Customer) shows Credit effect.
   

In case of Credit transaction for Sales Return,

1. Sales Return A/c shows Debit effect.

2. GST/VAT A/c shows Debit effect.

3. Name of the Buyer/Debtor/Customer A/c shows Credit effect.

Let's take an example for better understanding.

In the Books of M/s.RS Food Products.

Goods returned from M/s.Trupti Enterprises for ₹9510/- on dt.06/05/2020 against Sales Invoice No-185 dt.15/04/2020 for ₹57,336.20 including GST 18% and payment is not made on the same day.

The above transaction is a Credit transaction.

Journal Entry for the above transaction is as follows.

Steps and Procedures for Decision making for Debiting and Crediting of Ledger Accounts of the above transaction.

Step - 1

In first step,we have to identify the Ledger Accounts involved in the above transaction.

As a result,we found three Ledger Accounts.

1) Sales Return A/c

2) GST A/c(IGST/CGST and SGST are used as per applicability of GST Act.)

3) M/s.Trupti Enterprises A/c

 Step - 2

In second step,we have to find out the type of Ledger Accounts involved by using either one of the Accounting Approach.

The above three Ledger Accounts mentioned in step-1 are related to type

Nominal Account(Sales Return A/c),Personal Account(GST A/c) and Personal Account(M/s.Trupti Enterprises A/c) in Traditional Approach.

Expense Account(Sales Return A/c),Liability Account(GST A/c) and Asset Account(M/s.Trupti Enterprises A/c) in Modern Approach.

Step - 3

In third step,we have to look at the nature or flow of the Ledger Accounts involved by using either one of the Accounting Approach.

Sales Return A/c - Expense,GST A/c - Receiver,and M/s.Trupti Enterprises A/c - Giver for the business in Traditional Approach.

Sales Return A/c(Expense Account) increases,GST A/c(Liability Account) decreases and M/s.Trupti Enterprises A/c(Asset Account) decreases in Modern Approach.

Step - 4 

In fourth and final step,now it is time to place the Ledger Accounts in their respective column, i.e Debit Column or Credit Column by applying the Debit and Credit Rule using either one of the Accounting Approach.

As a result,Sales Return A/c shows a Debit effect for ₹8,059.32

GST A/c shows a Debit effect for ₹1,450.68 and

M/s.Trupti Enterprises A/c shows a Credit effect for ₹9,510.00

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