It refers to all types of returns, whether returns outwards (purchases returns) or returns inwards (sales returns). By definition, returns are goods returned by or to the business (entity) for whatever reason (defective or damaged goods, different goods dispatched by mistake, unsatisfactory goods, wrong type or size or color, incomplete dispatch/ consignment, etc.) Returns outwards are goods returned by the entity to its suppliers, while returns inwards are goods returned to the entity by its customers.

A purchases returns account is credited (goods go out to suppliers), while a sales returns account is debited (goods come in to the business).