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.) A customer returned goods to Wetzel Co. that had been purchased for $60 on account. The goods had originally cost Wetzel $35. Wetzel credited the customer's account for the return. (Consider the effects of both parts of this event.)AssetsLiabilitiesStk. EquityRevenuesExpensesNet IncomeStmt of Cash
Flows???????
What will be an ideal response?
(D) (NA) (D) (D) (D) (D) (NA)
The sales return decreases assets (accounts receivable) and stockholders' equity (retained earnings) by $60. Sales and net income decrease by the same amount. Because the company got the inventory back, the sales return increases assets (merchandise inventory) and stockholders' equity (retained earnings) by $35. The expense (cost of goods sold) decreases and net income increases by that same amount. The net effect is an increase to assets and stockholders' equity of $25 (or $60 ? $35). Cash flow is not affected.
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