Question

question 4 of 5
a company purchases some faulty merchandise on account for $500. the vendor issues a full refund in exchange for the merchandise. how does the company journalize th transaction?
select an answer from the options below.
a dr. accounts payable $500 cr. cash $500
b dr. inventory $500 cr. $500
c dr. purchase returns and allowances $500 cr. accounts payable $500
d dr. accounts payable $500 cr. purchase returns and allowances $500
question 5 of 5

Explanation:

When a company returns faulty merchandise purchased on account, it reduces the liability (Accounts Payable) and records the return (Purchase Returns and Allowances). Debiting Accounts Payable decreases the amount owed, and crediting Purchase Returns and Allowances reflects the return of the merchandise.

Answer:

D. Dr. Accounts Payable $500 Cr. Purchase Returns and Allowances $500