Question

Jones co. returned merchandise purchased from smith co. under the perpetual inventory system, the journal entry to record the return of merchandise by jones would be

Answer 1

Debit to "Accounts Payable to Smith"

and Credit to "Inventory" account

A debit in an expense account is a decrease in the amount owed. Since you are returning inventory and getting the money back, you owe less.

You credit inventory because you are taking away from it by returning the goods.