A firm using the perpetual inventory method returned defective merchandise costing $2,000 to one of its suppliers. The entry to record this transaction will include a debit to

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Since the firm is returning defective merchandise to one of its suppliers, this transaction involves a return of goods already purchased on credit. The entry to record this transaction will include a debit to Accounts Payable to show that the firm is reducing its accounts payable balance to the supplier. It is not appropriate to debit Accounts Receivable or Inventory since the firm is not receiving cash or recording a reduction in inventory. Purchase Returns and Allowances is an expense account used to record returns of goods to vendors, but it is not the correct account to use in this case, where we are reversing the original purchase transaction.

A Firm Using the Perpetual Inventory Method Returned Defective Merchandise