Under the perpetual inventory system, the adjusting journal entries to record estimated sales returns (the original sales were on account) would be:
A) $$\begin{array} { | c | r | r | }
\hline \text { Sales Revenue } &XX & \
\hline \text { Merchandise Inventory } & &XX \
\hline \text { Estimated Returns Inventory } &XX \
\hline \text { Refunds Payable } & & XX \
\hline
\end{array}$$
B) $$\begin{array} { | c | r | r | }
\hline \text { Sales Revenue } & XX& \
\hline \text { Refunds Payable } & &XX \
\hline \text { Estimated Returns Inventory } &XX \
\hline \text { Cost of Goods Sold } & &XX \
\hline
\end{array}$$
C) $$\begin{array} { | c | r | r | }
\hline \text { Accounts Receivable } &XX & \
\hline \text { Sales Revenue } & & XX \
\hline \text { Sales Revenue } & XX& \
\hline \text { Cost of Goods Sold } & & XX\
\hline
\end{array}$$
D) $$\begin{array} { | c | r | r | }
\hline \text { Sales Returns and Allowances } &XX& \
\hline \text { Cost of Goods Sold } & &XX \
\hline \text { Merchandise Inventory } &XX & \
\hline \text { Accounts Receivable } &&XX \
\hline
\end{array}$$

Question

Under the perpetual inventory system, the adjusting journal entries to record estimated sales returns (the original sales were on account) would be:
A) $$\begin{array} { | c | r | r | } 
\hline \text { Sales Revenue } &XX & \
\hline \text { Merchandise Inventory } & &XX \
\hline \text { Estimated Returns Inventory } &XX \
\hline \text { Refunds Payable } & & XX \
\hline
\end{array}$$
B) $$\begin{array} { | c | r | r | } 
\hline \text { Sales Revenue } & XX& \
\hline \text { Refunds Payable } & &XX \
\hline \text { Estimated Returns Inventory } &XX \
\hline \text { Cost of Goods Sold } & &XX \
\hline
\end{array}$$
C) $$\begin{array} { | c | r | r | } 
\hline \text { Accounts Receivable } &XX & \
\hline \text { Sales Revenue } & & XX \
\hline \text { Sales Revenue } & XX& \
\hline \text { Cost of Goods Sold } & & XX\
\hline
\end{array}$$
D) $$\begin{array} { | c | r | r | } 
\hline \text { Sales Returns and Allowances } &XX& \
\hline \text { Cost of Goods Sold } & &XX \
\hline \text { Merchandise Inventory } &XX & \
\hline \text { Accounts Receivable } &&XX \
\hline
\end{array}$$

Quizplus · Accepted Answer

Under the perpetual inventory system, the estimated sales returns are recorded as a reduction of sales revenue and inventory. Therefore, the adjusting journal entries should include a debit to Sales Returns and Allowances and a credit to Accounts Receivable for the estimated amount of returns. Additionally, there should be a debit to Inventory and a credit to Cost of Goods Sold for the estimated cost of the returned goods. The correct choice is B as it reflects the necessary entries.

Under the Perpetual Inventory System, the Adjusting Journal Entries to Record