In a periodic inventory system a return of defective merchandise to a supplier is recorded by crediting
A) Accounts Payable.
B) Inventory.
C) Purchases.
D) Purchase Returns and Allowances.

Question

Quizplus · Accepted Answer

In a periodic inventory system, returns of defective merchandise to a supplier are recorded by crediting the account Purchase Returns and Allowances, which is a contra account to Purchases. This account is used to reflect a deduction from purchases due to returns or allowances granted by the supplier. Option A (Accounts Payable) is incorrect because it is not affected directly by the return of merchandise, but rather would be credited when paying the supplier for the original purchase. Option B (Inventory) is incorrect because this account records the cost of products held for sale, and a return of defective merchandise would decrease the quantity of inventory but not the cost. Option C (Purchases) is incorrect because this account records the cost of merchandise purchased for resale, and returning defective merchandise reduces this cost which is reflected in the Purchase Returns and Allowances account, not in Purchases.

In a Periodic Inventory System a Return of Defective Merchandise