The entry to record the return of merchandise purchased on credit includes a debit to Accounts Payable and a credit to Purchases Returns and Allowances.

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This statement is true. When merchandise is returned that was originally purchased on credit, the Accounts Payable account needs to be adjusted to reflect the reduction in the amount owed to the vendor. The corresponding credit entry is made to Purchases Returns and Allowances, which is a contra account to the Purchases account.

The Entry to Record the Return of Merchandise Purchased on Credit