Indicate how each event affects the elements of financial statements. Use the following letters to record your answer in the box shown below each element. You do not need to enter amounts. Assume that Frank Company uses a perpetual inventory system.Increase = I Decrease = D No Effect = NA(Note that "No Effect" means that the event does not effect that element of the financial statements or that the event causes an increase in that element that is offset by a decrease in that same element.) Wetzel Co. discovered that a recent shipment of merchandise it had purchased was not of the same quality it had expected. The supplier agreed to grant Wetzel an allowance of $250. Wetzel had not yet paid the amount owed on the shipment to the supplier.AssetsLiabilitiesStk. EquityRevenuesExpensesNet
IncomeStmt of Cash Flows???????
What will be an ideal response?
(D) (D) (NA) (NA) (NA) (NA) (NA)
Although no inventory was physically returned, the cost of the inventory on hand decreased. Therefore, the purchase allowance decreases assets (merchandise inventory) and decreases liabilities (accounts payable) by $250. Because product costs are expensed when inventory is sold, not when the goods are purchased, the event does not affect net income. It does not affect the statement of cash flows.
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