Question

Ace Electronics, which uses a perpetual inventory system, recorded a debit to Sales Returns and Allowances and a credit to Accounts Receivable, along with a debit to Inventory and a credit to Cost of Goods Sold. What business event must have taken place?

Answer 1

A sales return at Ace Electronics is indicated by the debit to Sales Returns and Allowances and credit to Accounts Receivable, and the inventory adjustment with a debit to Inventory and credit to Cost of Goods Sold.

Step-by-step explanation:

The business event that must have taken place at Ace Electronics, given the journal entries involving a debit to Sales Returns and Allowances and a credit to Accounts Receivable, along with a debit to Inventory and a credit to Cost of Goods Sold, is a sales return. In a perpetual inventory system, when goods are returned by a customer, the business needs to adjust its accounting records to reflect the return of inventory and the corresponding impact on revenue and costs. This scenario involves restoring the returned items back into the inventory and reversing the associated revenue and cost recorded at the time of the initial sale.