Question

Jones Co. returned merchandise purchased from Smith Co. The journal entry to record the return of the merchandise by Jones under a perpetual inventory system is a debit to _____ and a credit to _____.
a. Accounts Payable—Smith Co.; Merchandise Inventory
b. Accounts Receivable— Smith Co.; Merchandise Inventory
c. Sales Returns and Allowances; Merchandise Inventory
d. None of these choices are correct.

Answer 1

Answer:

a. Accounts Payable—Smith Co.; Merchandise Inventory

Explanation:

We assume that Jones Co. purchased merchandise on account.

In order to record the purchase returns we do the following,

Smith Co, debit, since this is a payable account and credit by nature, we debit it to reduce the balance payable amount by the amount of inventory returned.

We also credit out merchandise inventory, since it is reduced and no longer has the returns accumulated.

Option A is the right answer.

Hope that helps.