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Hi Sir,
Q. Senji does not keep proper accounting records, and it is necessary to calculate her total purchases for the year ended 31 January 20X4 from the following information:
Trade payables
31 January 20X3 130,400
31 January 20X4 171,250
Payments to suppliers 888,400
Cost of goods taken by Senji for her personal use 1,000
Refund received from suppliers 2,400
Discounts received 11,200Compute the figure for purchases for inclusion in Senji’s financial statements?
A $914,650
B $937,050
C $939,050
D $941,850
->B is the answerTo deal with Refund, I debited to the Payables control a/c as I thought that Refund reduces Payables obligation. After I performed the calculation, Purchase = 942850 ( i assumed that this is the purchase before refund and drawing)
-> Purchase (SOPL) = 942850 – 2400 -1000 = 939450
But in BPP ans, Refund is credited to Payables a/c. Can you explained to me why my working is not correct?Thank Sir
When cash is paid to the supplier, the entry is Cr Cash and Dr Payables (with, in this case, 888,400).
If there is a refund (i.e. the supplier gives back 2,400 for some reason) then the entry is Dr Cash and Cr Payables with 2,400.
Refunds are simply the return of cash, whatever the reason. Maybe it is because they overpaid or maybe it is because goods were returned – it doesn’t matter what the reason is.
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