Question

A seller uses a perpetual inventory system, and on April 17, a customer returns $1,000 of merchandise previously purchased on credit on April 13. The seller's cost of the merchandise returned was $480. The merchandise is not defective and is restored to inventory. The seller has not yet received any cash from the customer. Complete the two journal entries to record the return transaction by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns. The first journal entry is to record the revenue part of the transaction and the second journal entry is to record the cost part

Answer 1

The seller makes two journal entries to record a returned merchandise transaction: one to adjust revenue and accounts receivable, and the other to adjust inventory and the cost of goods sold.

Step-by-step explanation:

To record the revenue reduction from the merchandise return using a perpetual inventory system, the seller will make the following journal entries:

1. To decrease revenue and reduce the accounts receivable balance (since the customer had purchased the items on credit and has not yet paid cash):
   Debit: Sales Returns and Allowances $1,000
   Credit: Accounts Receivable $1,000
2. To reflect the restoration of inventory at cost, thereby increasing inventory and decreasing the cost of goods sold:
   Debit: Inventory $480
   Credit: Cost of Goods Sold $480

These entries ensure that the seller's financial statements accurately reflect the return of the merchandise and the associated effects on revenue, receivables, inventory, and cost of goods sold.