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ACCA Applied Knowledge · Financial Accounting · General ledger accounts and journal entries

A business buys goods on credit from a supplier for $4,000 and later returns goods costing $500 to the supplier. Which entry records the return in the general ledger?

Debit Trade payables $500 and credit Purchase returns $500. The return reduces the liability to the supplier, which is a debit to payables, and the credit records the returns that offset purchases for the period.

  1. ADebit Trade payables $500, credit Purchase returns $500Correct
  2. BDebit Purchase returns $500, credit Trade payables $500
  3. CDebit Trade payables $500, credit Purchases $500
  4. DDebit Inventory $500, credit Trade payables $500

Explanation

Returning goods reduces the amount owed to the supplier, so payables is debited. The credit goes to purchase returns, which offsets purchases. Reversing the entry (option 2) would increase the liability. Crediting purchases directly is not the normal treatment under the returns day book system.

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