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Assume the perpetual inventory method is used 1) The company purchased $13,900 of merchandise on...

Question:

Assume the perpetual inventory method is used

1) The company purchased $13,900 of merchandise on account under terms 2/10, n/30.

2) The company returned $3,400 of merchandise to the supplier before payment was made.

3) The liability was paid within the discount period.

4) All of the merchandise purchased was sold for $21,800 cash What effect will the return of merchandise to the supplier have on the accounting equation?

Multiple Choice

  1. O Assets and equity are reduced by $3,400.
  2. O Assets and liabilities are reduced by $3,332
  3. O Assets and liabilities are reduced by $3,400
  4. O None. It is an asset exchange transaction

What Are Credit Sales:

When a company makes a sale, the customer can generally decide to pay immediately (i..e pay with cash or a bank credit card) or promise to settle the account at a future date, with no specific terms. The latter case is a credit sale and creates an accounts receivables.

Answer and Explanation: 1

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The answer is C Assets and liabilities are reduced by $3,400 since the return was before anything was paid.

Here's the journal entry reducing both...

See full answer below.


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Accounts Receivable Journal Entries

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Chapter 3 / Lesson 20
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Learn what accounts receivables (AR) are and understand their purpose in business. Explore different examples of AR and what the journal entry for it is.


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