Question

The journal entry Southland, Inc. would record for the return of merchandise purchased on account under a perpetual inventory system would be Select one: a. Debit Sales Returns and Allowances, credit Accounts Receivable b. Debit Inventory, credit Accounts Payable c. Debit Accounts Payable, credit Supplies d. Debit Accounts Payable, credit Purchase Returns and Allowances e. Debit Accounts Payable, credit Inventory

Answer 1

Answer:

d. Debit Accounts Payable, credit Purchase Returns and Allowances

Explanation:

When merchandise is purchased, the entries required are

Debit Inventories

Credit Cash/ Accounts payable

Depending on whether cash was paid or the purchase was done on accounts. When a return of the purchased items is done, a reversal of the entries posted earlier is done by;

Debit Cash/Accounts Payable

Credit Inventory

To recognize the return of merchandise purchased earlier. However, the inventory ledger usually has a subledger for tracking returns. This is known as the purchase return subledger/account and as such, that is where the credit entry goes to when a return is made.

Answer 2

Answer:

A.

Explanation:

Debit Sales Returns and Allowances. The selling price of the merchandise would need to be debited from the returns and allowances account.