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John Moffat.
John Moffat.-
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advus
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Smith Co has the following transactions:
(a) Purchase of goods on credit from T Rader:$450
(b) Return of goods purchased on credit last month to T Rouble:$700
What are the correct ledger entries to record these transactions?
DEBIT Purchases $450
DEBIT Trade Payables $250
CREDIT Purchase Returns $700
Dear Sir,could you tell me why the DEBIT Trade Payables is $250?How to calculate it?And why the $700 is recorded in the CREDIT Purchase Returns?Thank you.
John Moffat
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When they purchase goods, the entry is Dr Purchases Cr Payables with $450 (because they owe more)
When they return goods, the entry is Dr Purchase returns Cr Payables with $700 (because they owe less)The net effect of crediting payables with 450 and debiting payables with 700 is a debit of 700 – 450 = 250.
All of this is explained 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.
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