The document discusses returning goods that were purchased on credit. It explains that sometimes goods need to be returned if they are unsatisfactory, and a credit note is issued to acknowledge the return. It provides an example where a customer returns damaged jackets to a business, who then returns the jackets to their supplier. Both the customer and business receive credit notes for the returned goods.

1. 15.1
RETURNING GOODS

2. © Michael Allison, Trinity Grammar School.
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 A business both buys and sells goods on credit
 Sometimes these goods are returned because they are
deemed to be unsatisfactory because:
• They were the wrong size or colour
• They were unfit for their intended purpose
• They were the wrong brand name
• They were the wrong style
• They were delivered late and were no longer required
• They were damaged or faulty
15.1 RETURNING GOODS

3. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
• When a customer returns a good bought on credit, or when the business
returns goods bought on credit to a supplier, a new type of source document is
issued – a Credit Note – which acknowledges that goods have been returned
Name of seller – this is who
sold the damaged or
unwanted goods
Name of customer – this is
who returned the goods and
who now has a credit
Credit Note # - each Credit
Note has a unique number
Reason for credit– explains
why the customer returned
the goods
15.1 RETURNING GOODS

4. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
• Usually the flow of goods goes…
• But sometimes the goods go the other way…
Supplier Business Customer
Supplier sells
stock to the
business
Business sells
stock to the
customer
Supplier Business Customer
Purchase Return
Business returns
stock to the
supplier
Sales Return
Customer returns
stock to the
business
Purchase Sales
15.1 RETURNING GOODS

5. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
Purchase Return
When the business returns stock to the
supplier
Business Customer
Sales Return
Customer returns stock to the business
Supplier Business
15.1 RETURNING GOODS

6. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
15.1 RETURNING GOODS
• Example:
• Classic Clothing sold 3 jackets to Jim Johnson for $70 each (plus GST)
• Jim Johnson returned 3 jackets to Classic Clothing because they were
damaged
• Classic Clothing gives Jim Johnson a credit for $70 per jacket (plus GST)
• Classic Clothing then returns the damaged jackets to her supplier, Wholesale
Clothing for a credit of $30 each (plus GST)
Supplier Business Customer
Sale $210 + GSTCredit $210 + GSTCredit $90 + GST
Classic Clothing Date 1 Jan 2015
123 Main Street Credit Note: 1
Camberwell VIC 3124
Credit to: Jim Johnson
99 Smith Street
Kew VIC 3101
Qty Item Unit Cost $
3 Jackets 70.00 210.00
10% GST 21.00
Reason: damaged goods Total 231.00
Wholesale Clothing Date 1 Jan 2015
91 Melbourne Avenue Credit Note: WC5
Melbourne VIC 3000
Credit to: Classic Clothing
123 Main Street
Camberwell VIC 3101
Qty Item Unit Cost $
3 Jackets 30.00 90.00
10% GST 9.00
Reason: damaged goods Total 99.00
Wholesale Clothing Classic Clothing Jim Johnson

7. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
Supplier Business Customer
Wholesale Clothing Date 1 Jan 2015
91 Melbourne Avenue Credit Note: WC5
Melbourne VIC 3000
Credit to: Classic Clothing
123 Main Street
Camberwell VIC 3101
Qty Item Unit Cost $
3 Jackets 30.00 90.00
10% GST 9.00
Reason: damaged goods Total 99.00
Classic Clothing Date 1 Jan 2015
123 Main Street Credit Note: 1
Camberwell VIC 3124
Credit to: Jim Johnson
99 Smith Street
Kew VIC 3101
Qty Item Unit Cost $
3 Jackets 70.00 210.00
10% GST 21.00
Reason: damaged goods Total 231.00
Wholesale Clothing Classic Clothing Jim Johnson
Jim Johnson returned 3
jackets to Classic
Clothing
Classic Clothing returned 3
jackets to the supplier
Wholesale Clothing
15.1 RETURNING GOODS

8. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
• Where would a return of damaged or unwanted goods be recorded?
15.1 RETURNING GOODS
Cash receipt Cheque butt
Sales invoice
Purchase
invoice
Cash Receipts
Journal
Cash Payments
Journal
Sales Journal Purchases Journal
Any cash received? Any cash paid?
Credit sale made? Credit purchase of stock made?
Memo General Journal
Any other transaction?
Credit Note

9. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
TASK
In-class Homework
SQ1 X
SQ2 X