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A buyer purchased 50 items at $10 each on account and then returned 10 of them. With no early-payment discount, how much cash is paid to settle the account, and which accounts are affected?
ADebit Accounts Payable $400; credit Merchandise Inventory $400
BDebit Accounts Payable $500; credit Cash $500
CDebit Cash $400; credit Accounts Payable $400
DDebit Accounts Payable $400; credit Cash $400
Answer & Solution
Correct answer: D. Debit Accounts Payable $400; credit Cash $400
1. Original purchase = 50 x $10 = $500.
2. Return reduced the payable by 10 x $10 = $100, leaving $500 - $100 = $400 owed.
3. Paying it off debits Accounts Payable $400 (liability down) and credits Cash $400 (asset down).
4. $500 ignores the return; reversing the entry (option C) would record a receipt, not a payment.
_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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