Purchase Return Account - Credit Balance

Purchase return is a situation where the goods purchased by a business entity are returned to the supplier due to various reasons like damaged goods, wrong delivery, or any other reason. In such cases, the Purchase Return Account is used to record the transactions related to the return of goods.

The Purchase Return Account is a nominal account, and it is debited when goods are returned. The account is credited when the amount is refunded or the supplier agrees to adjust the amount in the future bills. Thus, the Purchase Return Account always shows a credit balance.

Reasons for Credit Balance

The Purchase Return Account is a contra account to the Purchase Account. It means that the Purchase Return Account is used to offset the purchases made by a business entity. The credit balance in the Purchase Return Account indicates that the purchases made by the company are decreasing.

The main reasons for the credit balance in the Purchase Return Account are as follows:

- Goods returned to the supplier due to defects or damages
- Goods returned to the supplier due to wrong delivery
- Goods returned due to overstocking or cancellation of orders

Conclusion

In conclusion, the Purchase Return Account always shows a credit balance as it is a contra account to the Purchase Account. The credit balance in the Purchase Return Account indicates that the purchases made by the business entity are decreasing due to the return of goods.