Question

Galaxy Company sold merchandise costing $3,100 for $5,200 cash. The merchandise was later returned by the customer for a refund. The company uses the perpetual inventory system. What effect will the sales return have on the financial statements

Answer 1

Answer:

1. Balance Sheet

Cash decrease  $5,200

Merchandise increase $3,100

2. Income Statement

Sales Revenue decrease $5,200

Cost of Sales decrease $3,100

Explanation:

When the Merchandise was sold, the Journal Entries were as follows :

Cash $5,200 (debit)

Cost of Goods Sold $3,100 (debit)

Sales Revenue $5,200 (credit)

Merchandise $3,100 (credit)

When the Merchandise was returned, the journal entries were :

Sales Revenue $5,200  (debit)

Merchandise $3,100 (debit)

Cash $5,200 (credit)

Cost of Goods Sold $3,100 (credit)

The Effect on Financial Statement would be :

1. Balance Sheet

Cash decrease  $5,200

Merchandise increase $3,100

2. Income Statement

Sales Revenue decrease

Cost of Sales decrease $3,100