Question

a company records a sales return from a credit customer. how will this transaction affect (1) assets, (2) stockholders' equity, and (3) net revenues?

Answer 1

A sales return from a credit customer will decrease a company's assets and stockholders' equity due to the reduction in net income and necessitate a reduction in net revenues as the initial sales revenue is offset by the return.

Step-by-step explanation:

When a company records a sales return from a credit customer, it affects the company's financial statements in multiple ways:

• Assets: The company's assets decrease because it must return the cash (or reduce account receivables) received from the initial sale.
• Stockholders' Equity: Stockholders' equity will decrease as the sales return will reduce the company's net income.
• Net Revenues: Net revenues decrease because the sales return will offset some of the sales that were initially recorded as revenue.

This transaction essentially reverses part of the original sale, impacting the financial performance metrics of the business.