What is the general ledger impact of Vendor Credits when applied?

The correct choice reflects the typical accounting treatment for Vendor Credits. When a vendor credit is applied, it signifies that a company has returned items or received an adjustment on previously purchased goods, resulting in a reduction of liabilities related to accounts payable (A/P).

Debiting A/P indicates that the amount the company owes to vendors is decreasing, reflecting the return or adjustment of inventory. On the other hand, crediting the Inventory Asset signifies that the value of the inventory on hand is increasing due to the returned items now being booked back into inventory. This dual impact on A/P and Inventory Assets accurately captures the transaction's essence, demonstrating both the reduction of the liability owed to vendors and the restoration of assets in the inventory account.

This treatment is crucial for maintaining accurate financial records, ensuring that both the balance sheet and the financial statements reflect true economic realities following vendor adjustments.