Question

Platter Inc. purchases goods from a supplier and later returns those goods. Platter uses a perpetual system. Which of the following statements is correct?

A) Purchases are debited when goods are returned.

B) Purchases are not affected by goods returned.

C) Accounts Payable is credited when goods are returned.

D) Inventory is not affected by goods returned.

Answer 1

In a perpetual system, Accounts Payable is credited when goods are returned to a supplier. Inventory is simultaneously debited to reflect the decrease in assets, thus keeping records accurate and updated in real-time.

Step-by-step explanation:

When Platter Inc. returns goods to a supplier while using a perpetual inventory system, C) Accounts Payable is credited when goods are returned. This is because the initial purchase would have involved debiting Inventory and crediting Accounts Payable. Upon returning the goods, this transaction is reversed: Inventory is debited (decreasing the asset) and Accounts Payable is credited, reflecting the reduction in the liability owed to the supplier as a result of the return.

In a perpetual system, it is critical to update inventory balances continuously, not only during purchases but also when items are returned. If this process is handled effectively, the inventory records provide a real-time view of the actual stock levels. Therefore, it is incorrect to say that purchases are debited when goods are returned or that Inventory and Purchases are not affected by goods returned.