Merchandise Inventory and Allowances

Jonathan Wild explains how to record purchases with returns and allowances. An allowance is a price reduction offered by a supplier to keep defective goods instead of returning them. The video demonstrates how to account for an allowance by reducing Accounts Payable and Merchandise Inventory. It also covers handling returns, where merchandise is returned to the supplier, and how to record discounts on payments, including calculating the discount on the remaining balance after returns.

What is an allowance in the context of purchases?

• An additional charge for expedited shipping

• A price reduction offered to the buyer

• A full refund for defective merchandise

• A fee for returning merchandise

Why might a supplier offer an allowance instead of a full refund?

• To avoid a full refund and compensate for damage

• To increase the buyer's future orders

• To avoid the hassle of shipping the items back

• To charge the buyer more for the next purchase

How is an allowance recorded in the accounts?

• Debit to Accounts Payable and credit to Cash

• Debit to Accounts Payable and credit to Merchandise Inventory

• Debit to Merchandise Inventory and credit to Accounts Payable

• Debit to Cash and credit to Merchandise Inventory

What happens to the Merchandise Inventory account when an allowance is recorded?

• It decreases because the inventory is worth less

• It increases because the inventory is more valuable

• It is transferred to Accounts Payable

• It remains unchanged

How do you record a return of $200 worth of merchandise?

• Debit Accounts Payable and credit Cash

• Debit Cash and credit Accounts Payable

• Debit Accounts Payable and credit Merchandise Inventory

• Debit Merchandise Inventory and credit Accounts Payable

What is the impact on Accounts Payable when merchandise is returned?

• It decreases

• It increases

• It remains the same

• It is transferred to Merchandise Inventory

How is the discount calculated on the remaining balance after returns?

• By multiplying the original purchase amount by the discount rate

• By subtracting the return amount from the original purchase amount

• By adding the return amount to the original purchase amount

• By multiplying the remaining balance by the discount rate

What is the final entry to record the payment after taking the discount?

• Debit Accounts Payable, debit Merchandise Inventory, and credit Cash

• Debit Cash, credit Accounts Payable, and credit Merchandise Inventory

• Debit Merchandise Inventory, credit Accounts Payable, and debit Cash

• Debit Accounts Payable, credit Merchandise Inventory, and credit Cash