A return moves goods back and changes a balance; a note changes a balance without moving goods. Use a sales return when a customer sends goods back, a purchase return when you send goods back to a supplier, and a debit or credit note for a rate difference, a charge or an allowance.
What is a sales return?
A sales return records goods that a customer has sent back. It does two things: the goods come back into your stock, and the customer's balance falls by their value.
A sales return should be made from the original invoice. The rate, discount and tax then come from that bill, and the quantity returned cannot be more than the quantity sold.
What is a purchase return?
A purchase return records goods you send back to a supplier. Stock goes down and what you owe the supplier falls.
At what cost do returned goods move?
Returned goods should move at their original cost. Goods returned by a customer re-enter stock at the cost they left at, so the profit you booked on the sale is taken back exactly. Goods returned to a supplier leave at the cost they were bought at. Using today's rate instead would distort both stock value and profit. See weighted average cost.
What are debit notes and credit notes?
A note adjusts a party's balance when no goods move.
| Note | Effect | Example |
|---|---|---|
| Customer debit note | Customer owes you more | Under-billed amount, late-payment charge |
| Customer credit note | Customer owes you less | Rate difference, allowance for damaged packing |
| Supplier debit note | You owe the supplier less | Short weight, rate difference in your favour |
| Supplier credit note | You owe the supplier more | Extra freight charged by the supplier |
How do you choose between a return, a note and a reversal?
- Goods came back: a return.
- Goods stayed, the amount changes: a note.
- The whole bill was entered wrongly: a reversal. See why invoices are reversed, not deleted.
How do returns appear in the ledger and in profit?
A return appears in the party's ledger on its own date with its own number, so the customer sees the bill and the return as two lines. In profit and loss, sales returns are deducted from sales and their cost is deducted from the cost of goods sold. Customer notes change net sales; supplier notes change the cost of sales.
What mistakes are common with returns?
- Reducing the customer's balance by hand but never putting the goods back into stock.
- Entering a return as a negative sale, which loses the link to the original bill.
- Accepting a return for more than was sold because nobody checked the invoice.
In M-Tech Logistics: you open the original invoice and choose Sales Return or Purchase Return; the lines, rates and maximum quantities come from the invoice, stock moves at the original cost and the party ledger is updated. Debit and credit notes for customers and suppliers are separate entries. See returns in the software, and how they affect the stock ledger.