Galaxy Company sold merchandise costing $1,700 for $2,600 cash.The merchandise was later returned by the customer for a refund.If the perpetual inventory method is used,what effect will the sales return have on the accounting equation?

Question

Quizplus · Accepted Answer

The sales return will decrease cash (an asset) by $2,600 and increase inventory (an asset) by $1,700, resulting in a net decrease in total assets of $900. Equity decreases by $900 due to the reversal of the profit from the sale.

Galaxy Company Sold Merchandise Costing $1,700 for $2,600 Cash