Question

Using a perpetual system, what is the correct journal entry when a customer returns a product that was purchased on account?

a. Debit Accounts Receivable, Credit Sales Returns and Allowances
b. Debit Sales Returns and Allowances, Credit Accounts Receivable
c. Debit Sales Returns and Allowances, Credit Inventory
d. Debit Inventory, Credit Sales Returns and Allowances

Answer 1

In a perpetual inventory system, a customer's return of a product purchased on account should be recorded by debiting Sales Returns and Allowances and crediting Accounts Receivable, adjusting for the reduction in revenue and the customer's payable balance.

Step-by-step explanation:

When a customer returns a product that was purchased on account using a perpetual inventory system, the correct journal entry is to debit Sales Returns and Allowances and credit Accounts Receivable. This entry reflects the reduction of revenue due to the return (hence the increase in the Sales Returns and Allowances account) and the decrease in the amount owed by the customer (hence the decrease in Accounts Receivable). No inventory is affected in this entry since the returned item would have previously been accounted for in cost of goods sold at the time of the original sale.a