Which of the following best describes a purchase return?

• A. An amount owed by customers to the company for goods or services provided on credit.
• B. The return of goods previously sold by a company to its customer, resulting in a reduction of accounts receivable.
• C. A payment received from a customer for goods sold on credit.
• D. The return of goods previously bought by a company to its supplier, resulting in a reduction of accounts payable.

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the concept of a purchase return. A purchase return occurs when a company returns goods it previously bought from a supplier. This action reduces the company's accounts payable because the obligation to pay for those goods is decreased.
2. Step 2: Analyze the options provided in the problem. Each option describes a different financial transaction or concept, so it is important to identify which one aligns with the definition of a purchase return.
3. Step 3: Eliminate incorrect options. For example, 'An amount owed by customers to the company for goods or services provided on credit' refers to accounts receivable, not a purchase return. Similarly, 'The return of goods previously sold by a company to its customer, resulting in a reduction of accounts receivable' describes a sales return, not a purchase return.
4. Step 4: Focus on the correct option. The correct description of a purchase return is 'The return of goods previously bought by a company to its supplier, resulting in a reduction of accounts payable.' This matches the definition of a purchase return.
5. Step 5: Reinforce the concept. A purchase return impacts the company's accounts payable because the company no longer owes payment for the returned goods. This transaction is recorded in the accounting system to reflect the reduction in liability.