A Company Uses the Periodic Inventory Method

question 148

Multiple Choice

A company uses the periodic inventory method.Which of the following entries would be made to record a return of $200 of inventory purchased on account?

• A) The accounting entry would be a $200 debit to Purchase returns and allowances and a $200 credit to Accounts payable.
• B) The accounting entry would be a $200 debit to Accounts payable and a $200 credit to Purchase returns and allowances.
• C) The accounting entry would be a $200 debit to Purchases and a $200 credit to Accounts payable.
• D) The accounting entry would be a $200 debit to Accounts payable and a $200 credit to Purchases.

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Definitions:

Absorption Costing

Absorption costing is a method of inventory costing in which all variable and fixed manufacturing costs are included in the cost of a unit of product, distinguishing it from variable costing.

Net Operating Income

The total profit of a business after all operating expenses are deducted from gross revenue, excluding taxes and interest payments.

Corporation

is a legal entity recognized by law as a separate entity from its owners, with its own rights and obligations.

Variable Costing

A costing method that includes only variable manufacturing costs in product costs and treats fixed manufacturing overhead as a period expense.