Hugh Snow, the buyer, returned merchandise to Farley Company, the seller. The entry on the books of Hugh Snow to record the return of merchandise assuming a periodic inventory system is used, would include a:Multiple Choicecredit to Purchases Returns and Allowances.credit to Accounts Payable.debit to Sales Returns and Allowances.credit to Account Receivable.
Question
Hugh Snow, the buyer, returned merchandise to Farley Company, the seller. The entry on the books of Hugh Snow to record the return of merchandise assuming a periodic inventory system is used, would include a:Multiple Choicecredit to Purchases Returns and Allowances.credit to Accounts Payable.debit to Sales Returns and Allowances.credit to Account Receivable.
Solution
The correct answer is: credit to Purchases Returns and Allowances.
Here's the step-by-step reasoning:
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Hugh Snow, the buyer, is returning merchandise. This means he is sending back items he previously purchased.
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In a periodic inventory system, the account "Purchases Returns and Allowances" is used to track returned merchandise. This account is credited when merchandise is returned because it reduces the cost of goods purchased.
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The other options are not correct because:
- Accounts Payable is a liability account and is used when you owe money to your suppliers. In this case, Hugh is not owing money but returning goods.
- Sales Returns and Allowances is an account used by sellers, not buyers, to track returned merchandise.
- Accounts Receivable is an asset account used when customers owe you money. In this case, Hugh is not owed money but is returning goods.
Similar Questions
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On Jan 5, a customer returned merchandise that had been purchased earlier on credit. The original sale was for $500, and the cost to the seller was $150. Demonstrate the required journal entry to record the return on the books of the seller, assuming the goods can be sold to another customer.Multiple choice question.Debit Accounts Receivable $500 and credit Cash $500.Debit Accounts Receivable $500; credit Sales Returns and Allowances $500; credit Merchandise inventory $150; and credit Cost of Goods Sold $150.Debit Sales Returns and Allowances $150; credit Accounts Receivable $150.Debit Sales Returns and Allowances $500; debit Merchandise Inventory $150; credit Accounts Receivable $500; and credit Cost of Goods Sold $150.
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