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What is the effect of a sales return on the accounting equation?
What is the effect of a sales return on the accounting equation?
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What is the effect of a sales return on the accounting equation?
Increase Assets, Increase Liabilities
Decrease Assets, Decrease Equity
Increase Assets, Decrease Equity
Decrease Assets, Increase Liabilities
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A sales return decreases assets (accounts receivable or cash) and decreases equity (revenue), thus affecting the accounting equation.
Questions & Step-by-step Solutions
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Q
Q: What is the effect of a sales return on the accounting equation?
Solution:
A sales return decreases assets (accounts receivable or cash) and decreases equity (revenue), thus affecting the accounting equation.
Steps: 5
Show Steps
Step 1: Understand the accounting equation: Assets = Liabilities + Equity.
Step 2: Know that a sales return means a customer returns a product.
Step 3: Realize that returning a product decreases assets (cash or accounts receivable).
Step 4: Understand that revenue decreases when a sale is returned, which decreases equity.
Step 5: Conclude that both assets and equity decrease, keeping the accounting equation balanced.
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