Return Inward Book

What is Return Inward Book?

The Return Inward Book is where you record goods coming back into your business from customers. Imagine you sell 100 bottles of soft drinks to a school canteen on credit. Later, the canteen manager discovers that 10 bottles are expired and returns them. You need to record this return, and that’s what the Return Inward Book is for.

The word “inward” means coming IN to your business. So Return Inward means goods returning INTO your store. This is different from Return Outward (goods you return to your suppliers going OUT of your business).

Why Do We Need Return Inward Book?

Understanding these reasons will help you answer WAEC theory questions:

1. Adjusts customer debt: When goods are returned, the customer owes less money. This book helps track the reduction.
2. Keeps records organized: All returns are in one place, making it easy to check patterns (maybe one product has many returns – there might be a quality problem).
3. Provides evidence: If a customer claims they returned goods but you say they didn’t, this book settles the argument.
4. Helps with accounting: You need to reduce your sales figure because some goods came back.
5. Inventory management: Returned goods go back into stock, so you must record them to know what you have.
6. Quality control: By studying this book, you can identify which products customers reject often and stop buying them from your supplier.

When to Use Return Inward Book

You record in this book when:

• Goods sold are defective (spoiled, broken, wrong quality)
• Wrong items were delivered to the customer
• Goods are damaged during delivery
• Customer ordered 50 items but you sent 60, so they return the extra 10
• Goods arrived past expiry date

Important: Only returns from CREDIT sales go here. If a cash customer returns goods and you refund them immediately, that goes in the Cash Book, not Return Inward Book.

Format of Return Inward Book

Information Recorded

Each entry in the Return Inward Book must show:

1. Date: When goods were returned
2. Customer name: Who is returning the goods
3. Credit Note number: The reference number of the credit note you gave them
4. Description of goods: What exactly was returned (e.g., “20 bags of Dangote Sugar, 50kg”)
5. Reason for return: Why they returned it (expired, damaged, wrong item, etc.)
6. Quantity returned: How many units came back
7. Amount: The money value of returned goods (this reduces what the customer owes)

Posting to the Ledger

After totaling the Return Inward Book at month end, you post to the general ledger:

Debit: Returns Inward Account (or Sales Returns Account)
Credit: Debtors Account (reduces what customers owe)

Using our example above:

Returns Inward Account Dr ₦55,500
Debtors Account Cr ₦55,500
(Being total sales returns for February)

Individual customer accounts in the Sales Ledger are also debited to reduce what each specific customer owes.

Source Document: Credit Note

When a customer returns goods, you prepare a Credit Note (not a debit note). This document says “we credit your account” – meaning we reduce what you owe us. The credit note is the source document for entries in the Return Inward Book.

A credit note typically shows:

• Your business name and address
• Customer name and address
• Credit note number and date
• Original invoice number (the sale that is being reversed)
• Description of returned goods
• Reason for return
• Amount credited

Return Inward vs Return Outward

Effect on Final Accounts

In the Trading Account, Returns Inward is deducted from Sales:

Sales: ₦500,000
Less: Returns Inward: ₦20,000
Net Sales: ₦480,000

This shows your true sales after accounting for returned goods. WAEC often asks about this in theory questions.

Common Exam Mistakes (WAEC Examiner Reports)

1. Confusing inward with outward: Many students cannot distinguish which is which. Remember: INward = coming IN from customers; OUTward = going OUT to suppliers.
2. Wrong posting: Students credit Returns Inward Account instead of debiting it. Remember: returns reduce your income, so debit the returns account.
3. Recording cash returns: Only credit sales returns belong here. If you gave cash refund, it goes in Cash Book.
4. Using wrong source document: Students mention invoice or debit note. The correct source document is CREDIT NOTE.
5. Wrong ledger posting: Posting to Creditors Account instead of Debtors Account. Remember: customers who return goods are debtors, not creditors.
6. Adding to sales: In final accounts, some students ADD returns inward to sales instead of deducting. It must always be subtracted.

Practice Questions

Multiple Choice Questions

1. Return Inward Book is used to record:
a) Goods returned to suppliers
b) Goods returned by customers ✓
c) Bad debts written off
d) Discount allowed

2. The source document for Return Inward Book is:
a) Invoice
b) Debit note
c) Credit note ✓
d) Receipt

3. The total of Return Inward Book is posted to:
a) Debit of Returns Inward Account ✓
b) Credit of Returns Inward Account
c) Debit of Creditors Account
d) Credit of Purchases Account

4. In the Trading Account, Returns Inward is:
a) Added to Purchases
b) Deducted from Purchases
c) Added to Sales
d) Deducted from Sales ✓

5. Another name for Return Inward Book is:
a) Purchases Returns Journal
b) Sales Returns Journal ✓
c) Cash Book
d) General Journal

Essay/Theory Questions

6. (a) What is Return Inward Book? (3 marks)
(b) State FOUR reasons why goods may be returned by customers (4 marks)
(c) Explain THREE advantages of maintaining a Return Inward Book (3 marks)

Tips: For (a), define it as subsidiary book for recording goods customers return. For (b), mention defective goods, wrong items, damaged goods, expired products. For (c), discuss organized records, adjusting customer debt, quality control.

7. The following returns were made to Adamu Trading Company in April 2024:
April 5: Okon Stores returned 15 bags of rice valued at ₦375,000 (reason: damaged bags)
April 12: Ngozi Enterprises returned 30 cartons of soap worth ₦180,000 (reason: wrong brand)
April 19: Musa Ventures returned 25 tins of milk valued at ₦125,000 (reason: near expiry)
April 26: Fatima Mart returned 10 bags of flour worth ₦150,000 (reason: insects found)

Required:
(a) Prepare the Return Inward Book for April 2024 (8 marks)
(b) Show the ledger posting in the General Ledger (4 marks)

Tips: Set up proper columns (Date, Customer, Credit Note No., Details, Amount). Total correctly. For posting, debit Returns Inward Account and credit Debtors Account with the total (₦830,000).

8. Distinguish between Return Inward and Return Outward under the following headings:
(i) Meaning (2 marks)
(ii) Source document (2 marks)
(iii) Effect on accounts (3 marks)
(iv) Treatment in final accounts (3 marks)

Tips: Use the comparison table above as your guide. Be clear and specific in your explanations.

9. Explain FIVE pieces of information contained in the Return Inward Book (10 marks)

Tips: Mention date, customer name, credit note number, description of goods, reason for return, quantity, amount. EXPLAIN each one, don’t just list.

Memory Aids

Remember direction: IN-CUSTOMERS (Return INward = customers return to you)

Source document: CREDIT NOTE (we CREDIT customer’s account – reduce what they owe)

Posting rule: DR-IN, CR-DEB

• DRebit Returns INward Account
• CRedit DEBtors Account

Final accounts: SUBTRACT from SALES (returns reduce income)

Real-Life Example

Mama Chioma runs a wholesale shop in Onitsha Main Market. On Monday, she sold 100 cartons of Golden Penny noodles to Eze Supermarket on credit for ₦400,000. On Thursday, Eze Supermarket returned 15 cartons because they were crushed during delivery.

Mama Chioma will:

1. Issue a Credit Note to Eze Supermarket for ₦60,000 (15 cartons × ₦4,000)
2. Record the return in her Return Inward Book
3. Eze Supermarket now owes ₦340,000 instead of ₦400,000
4. The 15 cartons go back into Mama Chioma’s inventory

Related Topics

To master Return Inward Book, study these connected topics:

• Sales Day Book (original credit sales)
• Return Outward Book (opposite – returning to suppliers)
• Credit Note (source document)
• Debtors Account in Sales Ledger
• Trading Account preparation