Discounts & returns · Level: Exam
Journal entry: Goods returned by a customer
The customer sends goods back. Sales and output VAT are reduced and the receivable falls by the gross amount.
Worked example
Wright plc returns goods worth £150.00 plus 20% VAT. We issue a credit note.
Correct journal entry
Sales £150.00, Output VAT £30.00 / Trade receivables £180.00
Debit
Sales£150.00
Output VAT£30.00
Credit
Trade receivables£180.00
Why?
- Sales: income reduced → debit
- Output VAT: liability decreases → debit
- Trade receivables: asset decreases → credit
Calculation
- VAT: 20% of £150.00 = £30.00
- Gross amount: £150.00 + £30.00 = £180.00
Typical mistake
Forgetting the output VAT correction.
Your turn
Three problems on exactly this case, with different numbers. Amounts work with or without separators, e.g. 2,400.00 or 2400.
Transaction
Johnson Ltd returns goods worth £1,300.00 plus 20% VAT. We issue a credit note.
Debit
Assets up · expenses · liabilities down
Total debit£0.00
Credit
Liabilities up · income · assets down
Total credit£0.00
Frequently asked questions
What is the journal entry for goods returned by a customer?
Example: Sales £150.00, Output VAT £30.00 / Trade receivables £180.00.
How do I recognise this case?
The customer sends goods back. Sales and output VAT are reduced and the receivable falls by the gross amount.
What is the typical mistake?
Forgetting the output VAT correction.