Home Brew Supplies Inc.uses the perpetual inventory method.Home Brew requested a price reduction from a vendor because the merchandise that was purchased did not meet specifications.The vendor sent Home Brew a credit memorandum for $2,300 to resolve the issue.How would Home Brew record this transaction?
A)Debit Cost of Goods Sold for $2,300 and credit Accounts Payable for $2,300.
B)Debit Merchandise Inventory for $2,300 and credit Accounts Payable for $2,300.
C)Debit Accounts Payable for $2,300 and credit Merchandise Inventory for $2,300.
D)Debit Purchase Returns and Allowances for $2,300 and credit Accounts Payable for $2,300.
E)Debit Accounts Payable for $2,300 and credit Purchase Returns and Allowances for $2,300.

Question

Quizplus · Accepted Answer

In the perpetual inventory system, a credit memorandum for a price reduction is recorded by debiting Accounts Payable and crediting Merchandise Inventory to reflect the decrease in inventory cost.