Multiple Choice
Which of the following statements is correct regarding a periodic inventory system and purchases?
4. Merchandising Operations
Periodic Inventory - Purchases
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Never Satisfied Incorporated (NSI) purchased 400 units of High Quality Goods for $300,000 on account. After inspecting the goods, they decided that 300 units did not meet their standards and NSI received a refund for these goods. If NSI uses a periodic inventory system, the entry to record the return of goods would include:
A
A credit to Inventory for $225,000
B
A debit to Accounts Payable for $225,000
C
A credit to Purchase Discounts for $225,000
D
A credit to Purchases for $225,000
Verified step by step guidance1
Understand that NSI uses a periodic inventory system, which means purchases are recorded in a Purchases account rather than directly in the Inventory account.
Calculate the cost per unit by dividing the total purchase cost by the number of units purchased: $300,000 / 400 units.
Determine the total cost of the returned goods by multiplying the cost per unit by the number of units returned: cost per unit * 300 units.
Recognize that the return of goods will reduce the amount owed to the supplier, so you need to debit Accounts Payable to reflect this reduction.
Credit the Purchases account to decrease the total purchases recorded, as the returned goods are no longer part of the purchases.
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