Question

Galaxy Company sold merchandise costing $1,700 for $2,600 cash. The merchandise was later returned by the customer for a refund. If the perpetual inventory method is used, what effect will the sales return have on the accounting equation?

a) Total assets and total equity decrease by $900.
b) Total assets decrease by $2,600 and total equity is decreased by $1,700.
c) Total assets and total equity decrease by $2,600.
d) Total assets and total equity increase by $900.

Answer 1

a) Total assets and total equity decrease by $900.

Explanation:

The perpetual inventory method records the selling or purchasing of inventory immediately when it occurs and provides high detail.