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27 July, 23:58

Shankar Company uses a perpetual system to record inventory transactions. The company purchases 1,500 units of inventory on account on February 2 for $55,500 ($37 per unit) but then returns 100 defective units on February 5. Record the inventory purchase on February 2 and the inventory return on February 5. (If no entry is required for a particular transaction/event, select "No journal entry required" in the first account

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  1. 28 July, 00:19
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    Debit Inventory $55,500

    Credit Accounts payable $55,500

    and

    Debit Account payable $3700

    Credit Inventory account $3700

    Explanation:

    When inventory is purchased with cash, an asset is exchanged for another otherwise, the transaction would require the recognition of a liability in form of trade payables.

    Given that the purchases 1,500 units of inventory on account on February 2 for $55,500 ($37 per unit), entries required

    Debit Inventory $55,500

    Credit Accounts payable $55,500

    Being entries to record inventory purchased on account

    Where the company then returns 100 defective units on February 5

    Cost of returns = 100 * $37

    = $3700

    Entries required

    Debit Account payable $3700

    Credit Inventory account $3700

    Being entries to record inventory returned
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