Journal Entry for Allowance on X-Mart's Books: Debit Accounts

On Dec. 20, XsMart received a $100 allowance because the merchandise it purchased on account, earlier in the month, was of poor quality. Demonstrate the reouiredjournal entry on X-Mart's books for the allowance assuming the perpetual inventory method. Debit Merchandise Inventory $100: credit Accounts Payable $100. Reason: Your debits and credits are reversed. Since they received an allowance for damaged merchandise, you will need to debit Accounts Payable and credit Merchandise Inventory to reduce them. Even though the merchandise wasn't actually returned, thejournal entry for an allowance is handled the same as a return. Debit Accounts Payable $100: credit Purchase Returns $100. Reason: Credit Merchandise Inventory. Merchandise Inventory is credited because the merchandise was ofinferior quality. Since they returned merchandise they purchased, you will need to debit Accounts Payable and credit Merchandise Inventory to reduce them. Debit Accounts Payable $100; credit Cash $i00. Reason: Cash is not involved. You need to credit Merchandise inventory. Since they received an allowance for damaged merchandise, you will need to debit Accounts Payable and credit Merchandise Inventory to reduce them. Even though the merchandise wasn't actually returned, the journal entry for an allowance is handled the same as a return. 0 Debit Accounts Payable $100; credit Merchandise Inventory $100. Correct Answer