Accounting treatment of Goods Returned (Final accounts-scenario 4)

The matching principle also applies when goods are returned either by the business in question or the buyer. That is returns outwards and returns inwards in that order. For both cases, the amount returned should be deducted from the total purchases and total sales values respectively. For the case of sales value, returns inwards amount is deducted to determine the net sales value. If the question is silent on whether there was returns inwards cases in the course of the financial period, then the value expressed in the question is assumed to be the net sales hence there was no returns inwards. Similarly, if the question is silent on whether there was returns outwards cases in the course of the financial period, then the learner need to assume that the given purchases value is also the net purchases value, hence there was no returns outwards.

Illustration

The following transactions were extracted from the books of Our Co. ltd for the year ended 31/12/2018 as follows

Required;

i). Determine the gross profit/loss for the period ended 31/12/2018 using the accounting approach

ii). Extract a balance sheet as at 31/12/18

Solution