Question

Acme Enterprises, which uses a perpetual inventory system, recorded a debit to Sales Returns & Allowances and a credit to A/R (no other accounts were affected). What must have taken place?

Answer 1

In a perpetual inventory system, when Acme Enterprises records a debit to Sales Returns & Allowances and a credit to A/R, it means the company received returned goods or granted allowances to customers. The Sales Returns & Allowances account is debited to reduce sales revenue, and the A/R account is credited to reduce the amount owed by the customers.

Step-by-step explanation:

In this scenario, Acme Enterprises, which uses a perpetual inventory system, recorded a debit to Sales Returns & Allowances and a credit to A/R. This transaction suggests that Acme Enterprises received returned goods or granted allowances to customers who had previously purchased items.

By debiting the Sales Returns & Allowances account, Acme Enterprises is reducing its sales revenue to account for the returned goods or allowances given. On the other hand, by crediting the A/R (Accounts Receivable) account, the company is reducing the amount owed by the customers who returned goods or received an allowance.