Under a perpetual inventory system, when a credit customer returns merchandise to the seller prior to paying for the merchandise, the seller debits Sales Returns and Allowances and credits Accounts Receivable and also debits Merchandise Inventory and credits Cost of Goods Sold.

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This statement is true. Under a perpetual inventory system, when a credit customer returns merchandise, the seller debits Sales Returns and Allowances and credits Accounts Receivable to reflect the return of the sale. The seller also debits Merchandise Inventory and credits Cost of Goods Sold to reflect the decrease in inventory and the return of the cost of goods sold.

Under a Perpetual Inventory System, When a Credit Customer Returns