Question

Dogs R US uses the perpetual inventory system to account for its merchandise. On May 1, it returned $50 of merchandise due to a defect. Assuming that the purchase was originally bought on credit, demonstrate the required journal entry to record the return by selecting all of the correct actions below. (Check all that apply.)
A. Debit Cash $50.
B. Credit Merchandise Inventory $50.
C. Debit Merchandise Inventory $50.
D. Credit Accounts Payable $50.
E. Credit Purchase Returns $50.
F. Debit Accounts Payable $50.

Answer 1

Answer:

F. Debit Accounts Payable $50.

B. Credit Merchandise Inventory $50.

Explanation:

As the company uses perpetual Inventory System, the journal entry to record the purchase return will be -

Debit           Accounts Payable             $50

Credit          Merchandise Inventory    $50

As the purchase was on credit, cash would not be either debit or credit. As the Merchandise Inventory returned to the suppliers, inventory was decreased. Hence, inventory will not be debit. Accounts payable was reduced too. Therefore, accounts payable will not be credit. Purchase returns are used in the periodic inventory system.