Jackson Company uses the perpetual inventory system. It sold merchandise to Jenny. After one month, Jenny returned $250 worth of the merchandise which had a cost of $150. Which of the following journal entries records the cost of merchandise returned?

Question

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The cost of merchandise returned is recorded as a debit to Merchandise Inventory and a credit to Cost of Goods Sold to reflect the decrease in inventory and the corresponding increase in cost. Option A records a sales return, but does not account for the cost side of the transaction. Option B records the cost of merchandise sold, rather than returned. Option D records a credit to Merchandise Inventory, but does not account for the corresponding decrease in Accounts Receivable.

Jackson Company Uses the Perpetual Inventory System