A company purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $200 worth of merchandise.
- On July 28, it paid the full amount due. Assuming the company uses a perpetual inventory system, and records purchases using the gross method, the correct journal entry to record the merchandise return on July 7 is:
A) Debit Merchandise Inventory $200; credit Accounts Payable $200.
B) Debit Accounts Payable $200; credit Merchandise Inventory $200.
C) Debit Merchandise Inventory $200; credit Sales Returns $200.
D) Debit Accounts Payable $1,800; credit Purchase Returns $200; credit Merchandise Inventory $1,600.
E) Debit Merchandise Inventory $1,600; credit Cash $1,600.

Question

Quizplus · Accepted Answer

The correct journal entry to record the merchandise return on July 7 is to debit Accounts Payable $200 and credit Merchandise Inventory $200. This is because the company is returning merchandise to the supplier, therefore the Accounts Payable balance will be reduced, and the Merchandise Inventory (an asset account) will also be reduced.

A Company Purchased $1,800 of Merchandise on July 5 with Terms