Tax – Debit Note and Credit Note for Purchase and Sale Return
If ABC Company sold goods to XYZ Company, later XYZ Company returned goods back to ABC Company.
What tax effect ?
- ABC Company will issue credit note for sale return, and record in sale journal as negative sale and VAT output for tax purpose.
- XYZ Company will issue debit note for purchase return, and record in purchase journal as negative purchase and VAT input for tax purpose.
Example
On 1 January 2018, ABC Company sold goods to XYZ Company of $1,100 (including VAT) for cash , but 25 February 2018, XYZ Company returned goods back to ABC Company.
Make Accounting Record
Solution
1 January 2018
ABC Company
Dr. Cash……….1,100
Cr. Sale…………………1,000
Cr. VAT output………..100
XYZ Company
Dr. Purchase…..1,000
Dr. VAT input……100
Cr. Cash……………………1,100
25 February 2018
ABC Company
Dr. Sale Return…1,000
Dr. VAT output……100
Cr. Cash…………………….1,100
XYZ Company
Dr. Cash………………1,100
Cr. Purchase return………1,000
Cr. VAT input…………………100