Answer: Both assets and liability sides decreases by $1,200.
Explanation:
Given that,
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.
