Assume the perpetual inventory method is used. 1) the company purchased $12,500 of merchandise on account under terms 2/10, n/30. 2) the company returned $1,200 of merchandise to the supplier before payment was made. 3) the liability was paid within the discount period. 4) all of the merchandise purchased was sold for $18,800 cash. what effect will the return of merchandise to the supplier have on the accounting equation?
Both assets and liability sides decreases by $1,200.
Purchased merchandise on account = $12,500
Merchandise return to supplier = $1,200
All merchandise sold = $18,800 cash
This will results in the:
Decrease in inventory by $1,200 which means that assets decreases by $1,200.
Accounts payable also reduces by $1,200 which means that liability decreases by $1,200.
Hence, both sides of the balance sheet i.e. assets and liability decreases by $1,200.