What net effect is there on a retail store's accounting equation when merchandise sold for a profit is returned by customers?
A)Assets and stockholders' equity decrease.
B)Assets and stockholders' equity increase.
C)Assets decrease and liabilities increase.
D)Stockholders' equity decreases and liabilities increase.

Question

Quizplus · Accepted Answer

When merchandise sold for a profit is returned, the store refunds the customer, decreasing assets (cash or accounts receivable). The return also reduces revenue, which decreases stockholders' equity.

What Net Effect Is There on a Retail Store's Accounting