[ekul]

After drafting the trial balance I discovered that I debited the purchase returns a/c instead of crediting it, what journal entry for the correction is needed?

[dawgsnkats]

Credit the account for the amount and debit the contra account for the amoun. Then enter the entry correctly. In essence, you are negating the transaction/journal entry and creating a new correct one. Be sure to write the reason below the entry to justify the correction.

[ekul]

Thanks for the answer but I'm new to bookkeeping and my course hasn't covered contra accounts yet and so I'm none the wiser. Basically I'm working through unanswered examples to aid my learning and I'm stuck on this example."R Black discovers that the monthly total of goods returned to suppliers in October, amounting to £200, has been debited to the purchase returns account. What journal entry will R Black have to make to correct the error?"

[morgaine300]

You've probably had contra acconts and either never saw the term, or forgot it. It's easy to sort of pass by without realizing it's an important concept. Especially when so many books and instructors teach that Drawing/Dividend is a debit without ever once explaining WHY. (Or perhaps they use another term in the UK.)

A contra account is a negative account. It's the opposite balance of what is normal for that type of account and it always offsets the balance of another account. For instance, assets are debit accounts. A contra asset would be a credit balance.

Accumulated depreciation is a contra asset. You've likely had that by now, but if not, that's the account where you're continually adding up how much you've depreciated some fixed asset like equipment. The equipment would be a debit and the accumulated depreciation would be a credit. Debits and credits go against each other. So the debit of the equipment would be reduced by the credit of the accumulated depreciation to create its book value. (Shown on the balance sheet.)

Generally we use contra accounts when we want to reduce some balance, but we don't want to reduce it directly in the account. So we use a second account with the opposite balance and that offsets our balance.

Purchases is an expense account and a debit. Purchases returned are going to reduce the amount of purchases. However, if you want to keep track of how much you have returned during a period, you would not credit it directly out of Purchases - you would instead credit the Purchases Returns account. That way you're keeping it separated. But in the end (on the income statement), that credit balance is going to go against the debit balance in Purchases and reduce the net purchases. Purchases Returns is a contra expense account.

The issue I'm having with correcting it is that all entries have to have at least two accounts. If you have 200 pounds as a debit, you'd have to credit that 200 out of there, which would get rid of it, and then credit another 200 to give it a credit balance. i.e. a total of 400. However, there isn't enough information given to know what account to debit in that entry.

You may have other information given in the problem that tells you where. When you got the returned goods, you would have either gotten return cash, or credit on your invoice. That is, the original entry would have been either Cash or Accounts Payable. You need to know which in order to know what to debit for the correction.