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What is the effect of a purchase return on the accounting equation?
What is the effect of a purchase return on the accounting equation?
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Practice Questions
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Q1
What is the effect of a purchase return on the accounting equation?
Increases assets and decreases liabilities
Decreases assets and decreases expenses
Decreases assets and decreases liabilities
Increases liabilities and decreases equity
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A purchase return decreases assets (inventory) and decreases expenses, as it reduces the cost of goods sold.
Questions & Step-by-step Solutions
1 item
Q
Q: What is the effect of a purchase return on the accounting equation?
Solution:
A purchase return decreases assets (inventory) and decreases expenses, as it reduces the cost of goods sold.
Steps: 6
Show Steps
Step 1: Understand what a purchase return is.
Step 2: Identify that returning items decreases inventory.
Step 3: Recognize that a decrease in inventory means a decrease in assets.
Step 4: Understand what Cost of Goods Sold (COGS) is.
Step 5: Realize that returning items decreases expenses related to COGS.
Step 6: Conclude that both assets and expenses decrease, keeping the accounting equation balanced.
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