Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

7. Receivables and Investments

Types of Receivables

Financial Accounting

7. Receivables and Investments

Types of Receivables

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Multiple Choice

Which of the following best describes a purchase return?

An amount owed by customers to the company for goods or services provided on credit.

The return of goods previously sold by a company to its customer, resulting in a reduction of accounts receivable.

A payment received from a customer for goods sold on credit.

The return of goods previously bought by a company to its supplier, resulting in a reduction of accounts payable.

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Verified step by step guidance

Step 1: Understand the concept of a purchase return. A purchase return occurs when a company returns goods it previously bought from a supplier. This action reduces the company's accounts payable because the obligation to pay for those goods is decreased.

Step 2: Analyze the options provided in the problem. Each option describes a different financial transaction or concept, so it is important to identify which one aligns with the definition of a purchase return.

Step 3: Eliminate incorrect options. For example, 'An amount owed by customers to the company for goods or services provided on credit' refers to accounts receivable, not a purchase return. Similarly, 'The return of goods previously sold by a company to its customer, resulting in a reduction of accounts receivable' describes a sales return, not a purchase return.

Step 4: Focus on the correct option. The correct description of a purchase return is 'The return of goods previously bought by a company to its supplier, resulting in a reduction of accounts payable.' This matches the definition of a purchase return.

Step 5: Reinforce the concept. A purchase return impacts the company's accounts payable because the company no longer owes payment for the returned goods. This transaction is recorded in the accounting system to reflect the reduction in liability.