A firm using the perpetual inventory method returned defective merchandise costing P2,000 to one of its suppliers. The entry to record this transaction will include a debit to a. Accounts Receivable. b. Inventory. c. Purchase Returns and Allowances. d. Accounts Payable.

Correct option is (d)

Explanation:

Purchase returns is a contra account which is related to purchases. Some part of purchases are returned due to many reasons such as receipt of defective goods or goods are not needed anymore. In such cases, a contra journal entry is passed in the books of both supplier and purchaser.

Following entry is passed in the books of the purchaser if goods were purchased on account:

Particulars Debit Credit

Accounts payable P2,000

Purchase returns and P2,000

allowances

(To record purchase returns)

The initial entry passed when purchases were made was"

Particulars Debit Credit

Purchases P2,000

Accounts payable P2,000

(To record purchases made

on account)

The above is reversed when purchases are returned.

So, the firm will debit accounts payable.