A company records a sales return from a credit customer.Indicate how this transaction would affect (1)assets, (2)stockholders' equity,and (3)revenues.

Question

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When a company records a sales return from a credit customer, assets decrease because the accounts receivable (or cash, if the return is refunded immediately) decreases. Stockholders' equity decreases because the return reduces net income, which is a component of equity. Revenues decrease because the sales return is subtracted from total sales revenue.

A Company Records a Sales Return from a Credit Customer