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Under the perpetual system, a buyer returns 10 of 50 previously purchased items (originally $10 each, bought on account) to the vendor. What is the journal entry to record the return?
ADebit Accounts Payable $500; credit Merchandise Inventory $500
BDebit Merchandise Inventory $100; credit Accounts Payable $100
CDebit Purchases Returns $100; credit Accounts Payable $100
DDebit Accounts Payable $100; credit Merchandise Inventory $100
Answer & Solution
Correct answer: D. Debit Accounts Payable $100; credit Merchandise Inventory $100
1. Value of items returned = 10 x $10 = $100.
2. A return simply reverses the original purchase entry for the returned portion.
3. Accounts Payable is debited to decrease the liability; Merchandise Inventory is credited to decrease the asset.
4. Option B is the original purchase direction; Purchases Returns is a periodic account; $500 is the whole purchase, not the return.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §3.3 "Basic Merchandising Transactions (Perpetual Inventory System)", p.95_
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