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Perpetual Inventory:Purchase Returns

Brian Krogol
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All right? So let's continue here at the top of the screen if the company returns the goods to the supplier for a refund. So now this is a situation where we bought goods and we're not so satisfied we want to return it to the supplier. Right? This is called a purchase return. Okay? And when we're in a perpetual inventory system, all of this happens in the inventory account. Okay? So let's see what happens. T. O. S. Company returned 100 units of things to its supplier. So up above we saw that they bought those things at $5 per thing and now they're returning 100 of them. Right? So this is gonna be 100 times the $5 price. There's a value of $500 that we're returning to the supplier. Right? So we're returning these 100 units. So we don't have these units. Right? We're gonna have to get rid of them from our inventory because they were previously in our inventory and now we got to get rid of them. Okay? So we're gonna have a credit to our inventory to lower the inventory. And we're gonna have a debit to our accounts payable, right? Because we debit the accounts payable because we don't owe this money anymore. Right? In our first example, we said we're gonna owe them 2500 for the 500 units. Well, we don't have 500 units anymore. We only have 400 that we need to pay for. Right? So we need to lower it by that 500. So this this 500, right? Here is a debit to accounts payable. Which is lowering the amount that we in essence o to the supplier now and we're crediting inventory right? Because we at first said we were gonna have these 500 units in inventory But we're selling back or we're giving back 100. So where there's only gonna be 400 units in in our inventory. So we're crediting this $500 value. Right? This is the value of those 100 units. It's not 500 units. It's $500 value of 100 units. Okay so that would be the entry to Rick record this purchase return. We're decreasing our inventory, decreasing the payable. Right? So in the first example we had our inventory go up 2500. Our accounts payable up 2500. Well now we return some of it. So our inventory is going down by the 500 of what we return and our liabilities we no longer owe 2500 to them. We only owe 2000. So we're gonna lower that by 500 Notice. So if we net these two entries, the one above and this one we're gonna see that there's $2,000 worth of value in our inventory. And that's the 400 units that we still have. We still have 400. Right? We gave back 100 we started with 500. So that's that $2,000 value. The 2500 inventory from the first entry minus the 500 returned. Same thing with the accounts payable, right? We were originally gonna pay them for the 500 units. Well now we only own for 400. Cool. Alright. So let's pause here and then in the next video, let's talk about purchase allowances. Alright, let's do that now.