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Return Outward is also known as: Full Meaning Explained
Return Outward is also known as: Full Meaning Explained
Accounting and banking terms can sometimes feel confusing, especially for beginners. One such term that often comes up is Return Outward. You may have heard your teacher, accountant, or banking professional say, “Return Outward is also known as…” but the explanation might not have been clear. This article aims to break it down in the simplest, most understandable way, using examples and practical insights so you truly grasp the concept.
What is Return Outward?
In accounting and banking, Return Outward refers to cheques or payments that were issued by a company or individual but could not be processed or honored by the bank. These are essentially outgoing payments that have been returned.
Why is it Important?
Understanding Return Outward is critical for anyone dealing with financial transactions, bookkeeping, or banking. It helps in:
- Tracking failed or bounced payments
- Maintaining accurate accounting records
- Managing liabilities effectively
- Preventing financial discrepancies
Accounting Implications
When a payment is returned, the company must record it in the Return Outward Account. This ensures that the company is aware of obligations that were not fulfilled and can take necessary action.
Return Outward is also known as – Key Definitions
To make it simple, Return Outward is also known as:
- Bank Payment Order (BPO)
- Returned Cheque
- Dishonored Payment
These terms are often used interchangeably, depending on the context. For instance, in corporate accounting, you might hear Bank Payment Order, whereas in personal banking, it is usually referred to as a Returned Cheque.
Difference Between Return Outward and Return Inward
It is important to distinguish between the two:
| Term | Meaning |
|---|---|
| Return Outward | Outgoing payments returned by the bank due to insufficient funds or errors |
| Return Inward | Incoming payments returned to the payer due to bank issues or incorrect details |
This distinction helps in maintaining proper accounting records and understanding cash flow.
Causes of Return Outward
There can be several reasons why a payment or cheque is returned by the bank:
- Insufficient Funds – The payer’s account does not have enough balance.
- Incorrect Details – Mistakes in account number, payee name, or signature.
- Stopped Cheque – The issuer has instructed the bank not to honor the cheque.
- Technical Errors – Bank processing errors or system issues.
Understanding the cause is essential for taking corrective measures.
Accounting Treatment of Return Outward
Once a payment is returned, accountants follow specific steps to record it correctly. This ensures transparency and accuracy in financial statements.
Journal Entry Example
Assume a company issued a cheque of $5,000 that was returned due to insufficient funds. The journal entry would be:
| Date | Particulars | Debit ($) | Credit ($) |
| 01/01/2026 | Bank A/c | 5,000 | |
| Return Outward A/c | 5,000 |
This entry helps the company track returned payments and adjust its cash balances accordingly.
Ledger Accounts
The Return Outward Account is usually credited whenever a payment is returned. This helps in reconciling bank statements and monitoring liabilities.
Real-Life Examples
Example 1: Corporate Payment
A company issues a cheque to a supplier for $10,000. Due to insufficient funds, the cheque is returned. The company records this as Return Outward to track the unpaid liability and contact the supplier for a new payment arrangement.
Example 2: Personal Banking
An individual issues a cheque to a friend for rent payment. If the cheque bounces, it is recorded as a Returned Cheque and may also incur bank charges.
Example 3: Government or Tax Payments
When a tax payment is issued via cheque and is returned, it is also considered Return Outward, and immediate correction is required to avoid penalties.
Importance in Banking and Finance
The term Return Outward is also known as emphasizes its significance in both banking and accounting. By monitoring returned payments:
- Businesses can maintain better cash flow
- Banks can notify customers to resolve issues promptly
- Accountants can prevent misstatements in financial records
Common Misconceptions
Even professionals sometimes misunderstand Return Outward:
- Thinking it only applies to cheques (it applies to all bank payments)
- Confusing it with Return Inward
- Ignoring it in daily accounting, leading to inaccurate statements
How to Avoid Issues
- Verify account balances before issuing payments
- Double-check all cheque details
- Keep a record of all payments and monitor bank returns regularly
Benefits of Understanding Return Outward
Knowing Return Outward and its proper recording provides multiple advantages:
- Accurate tracking of liabilities
- Avoiding financial penalties
- Streamlined cash flow management
- Better communication with suppliers and banks
Tips for Beginners
If you are new to accounting, follow these tips:
- Always reconcile your bank statement monthly
- Maintain a separate Return Outward Ledger
- Understand causes of returned payments to prevent repetition
- Consult your accountant for complex transactions
Frequently Asked Questions (FAQ)
Q1: Is Return Outward only related to cheques?
No. While cheques are common, Return Outward applies to all outgoing payments returned by the bank.
Q2: What is the difference between BPO and Return Outward?
BPO (Bank Payment Order) is one form of Return Outward. All BPOs that fail are recorded as Return Outward.
Q3: How to record a returned cheque in accounting?
It is credited to the Return Outward Account and debited back to the Bank Account to adjust balances.
Q4: Can bank charges be added to Return Outward?
Yes, bank fees due to returned payments are usually recorded separately in the accounts as an expense.
Conclusion
Understanding Return Outward is also known as Bank Payment Order, Returned Cheque, or Dishonored Payment is essential for anyone in accounting, banking, or finance. By grasping its meaning, causes, and accounting treatment, businesses and individuals can maintain accurate records, avoid discrepancies, and manage cash flow effectively.
If you found this guide helpful, share it with colleagues or students, and comment below with your experiences handling Return Outward payments. Clear understanding leads to smarter financial management.