A company records a sales return from a credit customer.Indicate how this transaction would affect the following five financial statement items.
$\begin{array}{llllll}
&&& \text { Stockholders' } \
&\text { Assets } &\text { Liabilities } &\underline{\text { Equity }}& \underline{\text { Revenues }} &\underline{\text { Expenses }}\
\text { a. } & \text { Decrease } & \text { No effect } & \text { Decrease } & \text { Decrease } & \text { No effect } \
\text { b. } & \text { Increase } & \text { No effect } & \text { Increase } & \text { Increase } & \text { Decrease } \
\text { c. } & \text { Increase } & \text { Increase } & \text { Increase } & \text { Increase } & \text { No effect } \
\text { d. } & \text { No effect } & \text { No effect } & \text { No effect } & \text { No effect } & \text { No effect }
\end{array}$

Question

Quizplus · Accepted Answer

When a sales return is recorded, assets decrease because the accounts receivable or cash is reduced. Revenues decrease because the sales revenue is reversed. Stockholders' equity decreases as a result of the decrease in net income due to the reduction in revenues. Liabilities and expenses are not affected by a sales return.

A Company Records a Sales Return from a Credit Customer