Module 3 · Core · 7 min read

Returning goods and debit notes

You will be able to: Create a purchase return from a bill; State the entries a return posts and what happens to input VAT; Explain why the Rate on a return must match stock cost; Follow how a return changes the bill's Outstanding.

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When goods are faulty, wrong or excess, you send them back. The record in Zeyto is a Purchase Return, sometimes called a debit note because it reduces what you owe. The supplier will normally send you a credit note for the same goods; the Supplier Credit Ref field on the return stores that credit note's number. A supplier's credit note also reduces the input VAT you claimed on the original supply, so the VAT must move in your books too.

A new Purchase Return form with the Create Against choice, the Source Doc box, the Update Stock tick box and Supplier Credit Ref.

Create Against Purchase Invoice, pull the lines, then set what goes back.

Create Against Purchase Invoice, pull the lines, then set what goes back.

Creating the return

  1. In Purchase, Purchase Invoice find the bill. It must be Submitted or Amended.
  2. Press Convert in its row and choose Create Purchase Return. Tick the lines and set Quantity to carry to what you are returning.
  3. On the return, check the Rate on each stock line, then press Submit.

You can also open a new Purchase Return, set Create Against to Purchase Invoice, pick the bill in Source Doc and press Pull Lines. You cannot return more than the quantity not yet returned. A return cannot be made against a goods receipt, only against an invoice. For goods with no bill, leave Create Against on Independent and choose the supplier yourself.

The Purchase Returns register listing the debit notes issued to suppliers.

Purchase, Purchase Return: each return is a debit note to the supplier.

Purchase, Purchase Return: each return is a debit note to the supplier.

What it posts

  • Stock goes down by the quantity returned, valued at the item's current stock cost.
  • Debit Payables for the total, reducing what you owe. Against a bill, it reduces that bill's Outstanding.
  • Credit Inventory for the stock value, credit Expense for any service lines, credit VAT Input for the VAT you give back.
  • The VAT ledger gets negative input lines in the month of the return's Date.
Returning 10 faulty unitsYou bought 100 units at AED 20 (2,000 plus 100 VAT = 2,100). Ten arrive damaged. The return is 10 x 20 = 200, VAT 5% = 10, total 210. Posting: debit Payables 210, credit Inventory 200, credit VAT Input 10. The bill's Outstanding falls by 210 and its Flow shows Partially Returned. If you had already paid in full, the 210 becomes a credit with the supplier that you can offset on a later payment.
Watch outGoods go out at their current stock cost (the average cost, or the layer cost for FIFO and LIFO items). If the Rate on a stock line does not equal that cost, Zeyto refuses the return with a message that debits and credits are not equal. Pulling lines from the bill fills in a Rate; if the message appears, press Columns and tick Cost / stock stats and Average rate under Form settings to see the cost, then correct the Rate and submit again.

If Settings, Costing has Negative Stock set to Block, a return of goods that are no longer in stock is refused. Cancelling a return puts the goods back and makes the bill outstanding again. A return dated in a filed VAT period cannot be submitted, amended or cancelled.

TipReturns with no stock movement, such as a price credit, can be recorded by unticking Update Stock for a credit-only return.

Try it in the demo

  1. Open demo.zeyto.app/demo-app/ and sign in with the public demo user (admin, password demoAdmin123).
  2. Open Purchase, Purchase Return and press + New Purchase Return.
  3. Set Create Against to Purchase Invoice and look at Source Doc and Pull Lines.
  4. Find the Update Stock tick box and the Supplier Credit Ref field.
  5. Open Purchase, Purchase Invoice and look at the Convert button on a submitted bill.
Open the live demo

Public demo company, sign in as admin / demoAdmin123. Data refreshes nightly.

Key takeaways
  • A return reduces stock, payables and input VAT.
  • Made against a bill, it lowers that bill's Outstanding.
  • The Rate on stock lines must equal the item's stock cost.
  • Supplier Credit Ref stores the supplier's credit note number.

Check yourself

5 questions on this lesson. Not timed, not the exam, and you can try again. Score 60% or more, and read the lesson, to complete it.

1. A purchase return can be made against a goods receipt.

2. What is another common name for a purchase return in accounting practice?

3. What does the Supplier Credit Ref field on a purchase return store?

4. You return 10 of 100 units bought at AED 20 with 5% VAT. What is debited to Payables?

5. A purchase return is refused with a message that debits and credits are not equal. What is the most likely cause?

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Practice questions for this module · Printable study sheet