Wize University Introduction to Financial Accounting Textbook > Merchandising
Purchase Returns and Allowances - Periodic Inventory
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Purchase Returns and Allowances (Periodic)
For a variety of reasons, a buyer may be dissatisfied with the inventory received. The inventory may be damaged, may not meet the specifications required, or may simply of a lower quality than expected. In this case, the buyer may choose to return the merchandise to the supplier.
Purchase Returns and Allowances
- Same entry if goods are returned or if supplier gives a rebate for the buyer to keep the goods.
- Credit account titledPurchase Returns and Allowances
- Debit accounts depends on if payment had been made yet.
- Cash: Refund is received if purchase had already been paid for.
- Accounts payable: Credit is received if purchase had not been paid for yet.
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Example: Purchase Returns and Allowances (Periodic)
Prepare all necessary journal entries related to the events on May 11, 12 and 21 following transaction:
XYZ Corp. purchased 500 units of inventory on accounts from its supplier on May 7th. The price per unit was $13.50. The terms of the sale were 2/10, n/30 and FOB shipping point. On May 9th the goods were shipped at a cost of $200.
On May 11th, XYZ Corp. returned 100 units with chipped paint and received a credit from the supplier.
On May 12th, XYZ Corp. complained that another 100 units had chipped paint, the supplier offered a 50% rebate on those units.
On May 14th, XYZ Corp. paid its balance in full.
On May 21st, XYZ Corp. returned 50 defective units (unrelated to those units from May 12th), these units had already been paid for.
Practice: Purchase Returns (Periodic)
ABC Inc. is a furniture retailer in Seattle, management needs your help to prepare its journal entries for the year before preparing its financial statements. The following events took place during January 2020.
Jan 1: Began the year with $60,000 in inventory.
Jan 7: Purchased 100 units for $120 each from Supplier A on account. The terms were 2/10, n/45 and FOB shipping point.
Jan 9: Supplier A shipped the goods, the cost of the shipping was $500.
Jan 10: Received the goods from Supplier A.
Jan 13: Returned 5 defective units to Supplier A.
Jan 17: Paid entire balance to Supplier A.
Jan 18: Purchased 200 units for $90 each from Supplier B on account. The terms were 1/5, n/60 and FOB destination.
Jan 20: Supplier B shipped the goods, the cost of the shipping was $300.
Jan 22: Received the goods from Supplier B.
Jan 30: Paid balance in full to Supplier B.
Jan 31: Returned 1 defective unit to Supplier A.
Prepare the journal entry to record the transaction on January 13th.
Transactions:
| Account | Debit | Credit |
|---|---|---|