Question

Wexim Toys sold merchandise to a customer on credit, terms 2/10, n/30 for $12,100. Three days later, the customer returned $2,500 of the merchandise. When recording the return transaction, Wexim Toys would record:

What is the correct answer?

Multiple Choice

• $2,500 in the Accounts Payable Cr. column and $2,500 in the Inventory Dr. column of the purchases journal.

• Debit Sales Returns and Allowances $2,500 and credit Accounts Receivable $2,500 in the general journal.

• $2,500 in the Cash Dr. column and $2,500 in the Inventory Cr. column in the cash receipts journal.

• Debit Cash $2,500 and credit Inventory $2,500 in the general journal.

• $2,500 in the Accounts Payable Dr. column and $2,500 in the Cash Cr. column of the cash payments journal.

Answer 1

Customer returned $2,500 of the merchandise purchased. In the books of seller i.e. Wexim Toys, two account will be effected due to this : Sales returnd and allowance and accounts receivable

Sales returnd and allowance is a contra sales account. It reduces sales. Thus, Sales returnd and allowance will be debited . Due to merchandise returned by the customer, balance in accounts receivable also decreases. Thus, accounts receivable will be credited.

Second option is the correct option i.e. Wexim Toys would record following entry :

Journal

Account Title and Explanation	Debit	Credit
Sales Returns and Allowances	2,500
Accounts receivable		2,500

Second option is the correct option

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