In the accounts of ABC Ltd, which of the following double-entries is the correct way to record that goods have been returned by XYZ Ltd which were originally sold to them on credit?
Select ONE answer:
- Account to Debit Sales / Account to Credit ABC Ltd
- Account to Debit Returns Inwards / Account to Credit XYZ Ltd
- Account to Debit Sales / Account to Credit XYZ Ltd
- Account to Debit XYZ Ltd / Account to Credit Returns Inwards
Show your workings to arrive at your answer, and explain and justify your reasons:
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This multiple choice question is suitable for Accounting KS5 classes.
The answer is 2 – Having returned goods, XYZ Ltd, who is a credit customer or debtor, now owes less previously than they did to ABC Ltd. As the amount owed by a debtor is an asset and an asset account has to be credited to reduce it and thus XYZ Ltd’s account has to be credited. Returns inwards, being the opposite of sales (which is always credited) has to be debited.
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