A firm uses the periodic inventory method. Which of the following entries would be made to record a return of $220 of inventory purchased on credit, including GST?
A)The accounting entry would be a $220 debit to Accounts payable, a $200 credit to Purchase returns and allowances, and a $20 credit to GST Clearing.
B)The accounting entry would be a $220 debit to Purchases and a $220 credit to Accounts payable.
C)The accounting entry would be a $200 debit to Accounts payable and a $200 credit to Purchases.
D)The accounting entry would be a $200 debit to Purchase returns and allowances, a $20 debit to GST Clearing and a $220 credit to Accounts payable.

Question

Quizplus · Accepted Answer

The correct entry is a $220 debit to Accounts payable, a $200 credit to Purchase returns and allowances, and a $20 credit to GST Clearing. This is because the return of inventory reduces the amount owed to the supplier (Accounts payable), increases the amount of purchase returns and allowances, and reduces the amount of GST payable.

A Firm Uses the Periodic Inventory Method