Question

A company using a perpetual inventory system that returns goods purchased on credit and not yet paid for would:

a)	decrease Accounts Payable and decrease Inventory.

b)	increase Cash and decrease Accounts Receivable.

c)	decrease Sales Revenue and increase Accounts Payable.

d)	decrease Accounts Payable and increase Purchase Returns.

e)	increase Sales Returns and decrease Accounts Receivable.

Answer 1

a) Decrease account payable and decrease inventory

There are two primary inventory management systems that businesses use: a perpetual inventory system or a periodic inventory system.

Under Perpetual inventory system records are updated on real time basis. A perpetual inventory system keeps continual track inventory balances. Updates are made when inventory receive or sell . Purchases and returns are immediately recorded in your inventory accounts.

As given return of purchase is made even though it is on credit basis but already recorded in book under perpetual inventory system and hence reverse entry is to be made and as it affecting inventory account 2nd effect is to be given to inventory and not to purchase return