Under a perpetual inventory system, when a credit customer returns non-defective merchandise to the seller, the seller debits Sales Returns and Allowances and credits Accounts Receivable and also debits Merchandise Inventory and credits Cost of Goods Sold.

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Under a perpetual inventory system, when a credit customer returns non-defective merchandise to the seller, the seller debits Sales Returns and Allowances and credits Accounts Receivable. Additionally, the seller should also debit Merchandise Inventory and credit Cost of Goods Sold to adjust for the returned inventory. This is because the returned inventory reduces the amount of inventory sold and therefore the cost of goods sold should also be reduced.

Under a Perpetual Inventory System, When a Credit Customer Returns