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Hi John. I hope your weekend is going well ! I am confused on question 4.3 from the BPP revision kit . I hope you can help.
When we purchases goods on credit from Rader, we credit Payables $450 (because we are owing money) and debit Purchases $450
If we return goods that we purchased last month from Rouble, we debit Payables $700 and credit Returns $700. (When we originally bought the goods we will have credited Payables with $700. Now we have sent the goods back, we no longer owe the $700 and so we debit Payables).
Instead of making two separate entries in Payables – debit $700 and credit $450, we can just make one entry of the net amount of $250 debit.
So the end result is:
Debit Payables $250
Debit Purchases $450
Credit Returns $700I do explain the treatment of returns in my free lectures. The lectures are a complete free course for Paper FA and cover everything needed to be able to pass the exam well.
There are two different suppliers on the question so is that a typing error ?
I have the same doubt sir two different suppliers are there, so shouldn’t be two different entries.
No, there is no typing error and they are different suppliers.
The payables account in the nominal/general ledger shows the total owing to all suppliers – it does not separate the amounts owing to each individual supplier.
The amount owing to each individual supplier is recorded in the payables ledger, but this is not part of the double entry. I do explain this in my free lectures on the Books of Prime Entry.
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