Part 1 · Keeping the books · Chapter 1.10
Sales, purchases and returns
Draft: the wording may change.
The idea
A bill, once given, is never torn up or quietly changed. If goods come back or the price was wrong, you write a new document that reverses part of the old one: a credit note or a debit note. It is an eraser that leaves a trace — the old bill stays, the correction sits next to it, and anyone can see both.
Sales and purchases first
Every stockist lives on two kinds of bills.
- Sales bill — we sell to a retailer. Debit the retailer (they owe us), credit Sales and GST Output. Stock goes out.
- Purchase bill — the company sells to us. Debit Purchases and GST Input (credit we can claim against our GST), credit the company (we owe them). Stock comes in.
On 3 October the company bills us for 100 cartons: goods ₹10,000, GST ₹1,800, total ₹11,800.
| Account | Debit | Credit |
|---|---|---|
| Purchases | 10,000 | |
| GST Input | 1,800 | |
| Company (Sundry Creditors) | 11,800 |
At the counter: goods come back
On 15 October Ravi Stores sends back two cartons from bill #245 — the packets were crushed in delivery. Their value is ₹200 plus GST ₹36.
We do not open bill #245 and reduce the quantity. We issue credit note CN-07, which names bill #245 as the original:
| Account | Debit | Credit |
|---|---|---|
| Sales Returns | 200 | |
| GST Output | 36 | |
| Sundry Debtors (Ravi Stores) | 236 |
Ravi now owes ₹236 less. Our GST Output falls by ₹36. The two cartons come back into stock, kept apart as damaged.
The same thing happens on the buying side. Five cartons in the company's delivery arrived wet. We raise debit note DN-03 against their bill:
| Account | Debit | Credit |
|---|---|---|
| Company (Sundry Creditors) | 590 | |
| Purchase Returns | 500 | |
| GST Input | 90 |
We now owe the company ₹590 less, and we take back ₹90 of the GST credit we had claimed.
Which note, which side
| Situation | Document | Who issues it | Effect |
|---|---|---|---|
| Retailer returns goods | Credit note | We (seller) | Retailer owes less; stock comes back |
| We gave too high a rate | Credit note | We (seller) | Retailer owes less; no stock moves |
| We charged too little | Debit note | We (seller) | Retailer owes more |
| We return goods to the company | Debit note | We (buyer) | We owe the company less |
| The company corrects its own bill | Credit note | Company | We owe the company less |
A simple rule: the seller issues a credit note to reduce what the buyer owes. A debit note from the buyer is our record of the claim; many companies reply with their own credit note, and that is the document that settles it.
Common mistake
Editing or cancelling the original bill when goods come back, or "adjusting" the return by billing fewer cartons next time. The GST return for that month may already be filed with the old figure. Ravi's copy of the bill no longer matches ours. GST law also expects a credit note to name the original invoice and allows it only within a time limit — check the current rule on the GST portal.
Where you'll use this
In Part 3, expiry returns, damage claims and price-drop claims all run on credit and debit notes. A stockist who raised a proper credit note to the retailer can show it with the claim; one who edited the bill has nothing to show.
Check yourself
- A retailer returns goods worth ₹500 plus ₹90 GST. Which document do we issue, and which account is credited?
- We billed a rate ₹2 higher per packet than agreed. Does any stock move when we correct it?
- Why not just edit the original bill?
Answers
- A credit note. The retailer's account (Sundry Debtors) is credited ₹590; Sales Returns and GST Output are debited.
- No. It is a money-only credit note for the price difference.
- The original may already be in a filed GST return and in the retailer's books; editing it breaks both and leaves no trace of what changed.