Accounting for IGCSE & O level - The Fundamentals Of Accounting (Section 40 - No. 45)
What is the impact on the accounting equation of a customer returning defective goods previously sold on credit?
Assets increase, liabilities decrease.
Assets decrease, liabilities increase.
Assets decrease, equity increases.
The composition of assets changes; no net effect.
Explanation
Sales Returns & Allowances and Accounts Receivable are debited, thus cancelling the sales. No net change is seen.
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