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 = IDecrease = DNo Effect = NA customer returned goods to Whetzel Co. that had been purchased for $60 on account. The goods had originally cost Whetzel $35. Frank reduced the customer's account balance for the return.AssetsLiabilitiesEquityRevenuesExpensesNet IncomeCash Flow???????
What will be an ideal response?
(D) (N) (D) (D) (D) (D) (N)
When the customer returns merchandise, Whetzel Co. reverses the original sales transaction. This decreases assets (accounts receivable) and decreases revenue, which decreases net income and equity, all by $60. It also increases assets (merchandise inventory) and decreases expenses (cost of goods sold), which increases net income and equity, all by $35. The net effect is a decrease to assets and equity of $25.
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