On March 1, Warwick’s Co., a women’s clothing store, purchased $72,900 of merchandise from a supplier on account, terms FOB destination, 2/10, n/30. On March 5, Warwick’s returned $8,200 of the merchandise, receiving a credit memo, and then paid the amount due on March 9, within the discount period. Journalize Warwick’s entries to record (a) the purchase, (b) the merchandise return, and (c) the payment. Refer to the Chart of Accounts for exact wording of account titles.

Answer and Explanation:

The Journal entries are shown below:-

1. Merchandise inventory Dr, $72,900

         To Accounts payable $72,900

(Being purchase is recorded)

Here we debited the Merchandise inventory as assets is increasing and we credited the Accounts payable as liabilities is also increasing.

2. Accounts payable Dr, $8,036 ($8,200 - ($8,200 - 2%)

                To Merchandise inventory $8,036

(Being merchandise return is recorded)

Here we debited the accounts payable as liabilities is decreasing and we credited the Merchandise inventory as assets is decreasing.

3. Accounts payable Dr, $64,864 ($72,900 - $8,036)

              To Cash $64,864

(Being payment is recorded)

Here we debited the accounts payable as liabilities is decreasing and we credited the cash as assets is decreasing.