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ACCA Applied Knowledge · Financial Accounting · Sales and purchases

Kestrel Ltd returns goods that it bought on credit from Alder Ltd because they were faulty. Which entry does Kestrel Ltd record in its ledger accounts?

The buyer debits Payables and credits Purchase returns. Returning faulty goods reduces the liability owed to the supplier, which is a debit to payables, and the matching credit reduces the cost of purchases through the purchase returns account.

  1. ADebit Payables, credit Purchase returnsCorrect
  2. BDebit Purchase returns, credit Payables
  3. CDebit Payables, credit Sales returns
  4. DDebit Receivables, credit Purchase returns

Explanation

Returning goods to a supplier reduces the amount owed, so payables (a liability) is debited. The credit goes to purchase returns, which reduces net purchases. Option B reverses the entry, and sales returns are not used by the purchaser.

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