Jul 5 A customer returned stock to the business that was sold for $400 (cost price $200) (Credit note 67). State the effect to Owner's Equity of the above transaction.

Question

Jul 5  A customer returned stock to the business that was sold for $400 (cost price $200) (Credit note 67). State the effect to Owner's Equity of the above transaction.

BlackTom AI · Accepted Answer

We start by identifying what happened: a sale occurred for $400 with cost of goods sold (COGS) of $200, and a customer returned the stock. This is effectively a reversal of the original sale and its associated cost.
Option a: Decrease by $400. This would imply the equity decreases by the full sale amount, but in a return, only the net effect on profit is reversed. The revenue impact is $400, but the cost impact is also reversed by $200, so the net effect is not a $400 decrease.
Option b: Increase by $400. A return cannot increase equity; it reduces both revenue (credit) and COGS (debit) when reversing the sale, so equity does not rise by $400.
Option c: Decrease by $200. This matches the net effect: the original $400 revenue is reversed (reducing income by $400) but the $200 cost is also reversed (increasing income by $200), yielding a net decrease of $200 in net income, which lowers Owner's Equity.
Option d: Increase by $200. An increase in equity would require a gain or positive net income, but the reversal of the sale reduces net income by $200 after accounting for the reversed revenue and COGS, so this option is incorrect.
In summary, the return reduces revenue by $400 and reverses COGS by $200, resulting in a net decrease to Owner's Equity of $200, which aligns with option c.

Jul 5 A customer returned stock to the business that was sold for $400 (cost price $200) (Credit note 67). State the effect to Owner's Equity of the above transaction.Single choice

Similar Questions

True or False? Owner's equity (also called net worth) is essentially what would be left for the owners from company assets after paying off all liabilities.

Zia Company reports the following balance sheet information for 2021:

Which of the following best describes capital in the context of equity?

Owner's equity is also called ________.

Chandler Corporation had assets equal to $330,500 and liabilities equal to $250,250 for a recent year-end. What was the total equity for Chandler's business at year-end?

What is NOT another term for “Owner's Equity”?

On 1 January 2026, Jim’s Musical Instruments had Assets of $200 000 and Owner's Equity of $80 000.On 2 January 2026 the owner withdrew inventory of $1 000. What would Assets equal after this transaction?

More Practical Tools for Students Powered by AI Study Helper

Homework AI Solver

Stylized AI Paper Writer

Plagiarism Checker Assistant

Citation AI Academic Writing Tool

In-Class Translation Assistant

AI Note Generator

AI Quiz Answers

Past Exam Questions from University Test Bank

Smart Practice Assistant

Adaptive Practice

Making Your Study Simpler