Or if you purchased goods by paying immediately, you would have recorded:
DEBIT Inventory / Purchases CREDIT Bank / Cash
Most customer-supplier relationships are run on some kind of a credit system, so the first journal entry above is the most common.
Perpetual vs Periodic
Note that you would debit the inventory account (an asset account) if you were using a perpetual inventory system (a system that keeps perpetual or continuous track of your inventory in real-time) but if you were using a periodic inventory system you would debit the purchases account (a temporary expense account). For a full explanation see the lesson on perpetual and periodic inventory.
Purchases Returns Journal Entry
Now, the purchases return journal entry would be the opposite of the above. Since most customer-supplier relationships operate on credit, one would usually record:
Remember, accounts payable (or creditors) is a liability account, which increases on the credit side (right) and decreases on the debit side (left). Since we are returning goods we purchased, we owe our supplier less, so we debit accounts payable / creditors.
Please note that if the perpetual system is in use, the credit then goes to inventory, which reduces these assets.
But if the periodic system is in use, we credit an account called "purchases returns." Like the "purchases" account, "purchases returns" account is a temporary expense account. Purchases returns are set off against purchases to get a net purchases figure.
There you go!
I hope the purchases returns journal entry makes more sense now!
Best, Michael Celender Founder of Accounting Basics for Students