Question

Assume the perpetual inventory method is used:

The company purchased $13,500 of merchandise on account under terms 2/10, n/30.
The company returned $3,000 of merchandise to the supplier before payment was made.
The liability was paid within the discount period.
All of the merchandise purchased was sold for $21,000 cash.
What effect will the return of merchandise to the supplier have on the accounting equation?

Answer 1

The return of $3,000 worth of merchandise to the supplier decreases the company's inventory and accounts payable, maintaining the balance in the accounting equation.

Step-by-step explanation:

The return of merchandise to the supplier under the perpetual inventory method will affect the accounting equation by reducing both the assets and liabilities of the company. Originally, the company purchased merchandise worth $13,500 on account, which meant that inventory (an asset) and accounts payable (a liability) increased by that amount. Since the company returned merchandise worth $3,000 before payment, this action will decrease the inventory by $3,000 and also reduce the accounts payable by the same amount.

When the liability was paid within the discount period, the company was entitled to a discount of 2% on the purchase. The payment would then be calculated as follows: ($13,500 - $3,000) * 98% = $10,290 payment, reflecting a discount of $210 ($10,500 * 2%). This payment reduces the company's cash (asset) and accounts payable (liability).