Q5-26RQ - Horngren'S Financial And Managerial Accounting

Question

When recording purchase returns and purchase allowances under the periodic inventory system, what account is used?

Step-by-Step Solution

Answer

The purchase return and allowance account is credited when using a periodic inventory system.

Meaning of Purchase Return

Purchase returns refer to the situation when a business returns the goods to its vendor due to any damages, defects, or any other reason. Purchase returns are credited in the books of accounts because it decreases the inventory. 

Recording of purchase return and allowance under a periodic inventory system

Under the periodic inventory system, the account named merchandise return is not used. The companies use purchase return and allowance accounts under the periodic inventory system. 

The journal entry to record purchase returns and purchase allowances is as follows:

Date	Accounts and Explanation	Debit ($)	Credit ($)
	Accounts payable	XXX
	Purchase return and allowances		XXX
	(To record the purchase return and allowances)