When Merchandise Purchased on Account Is Returned Under the Perpetual

question 41

Multiple Choice

When merchandise purchased on account is returned under the perpetual inventory system, the buyer would debit

• A) Inventory
• B) Purchases Returns and Allowances
• C) Accounts Payable
• D) Accounts Receivable

---

Definitions:

FOB Destination

A shipping term indicating that the seller is responsible for the cost of transporting goods to the buyer's designated location; ownership transfers upon delivery.

Revenue

The total amount of money received by a company for goods sold or services provided during a certain time period.

Acid-Test Ratio

A financial metric that measures a company's ability to cover its current liabilities with its most liquid assets.

Liquidity Problems

Financial challenges arising from a company's inability to convert assets to cash quickly without significant loss in value, possibly hindering its capacity to meet its short-term obligations.