How would a sale of $400 of inventory on credit affect the balance sheet if the cost of the inventory sold was $160? A. It would increase noncash assets by $400 and increase equity by $400 B. It would decrease noncash assets by $160 and decrease equity by $160 C. It would increase cash by $400 and increase equity by $400 D. Both A and B, above happen simultaneously E. None of the above

Question

Business

Sterling Obrien

15 June, 13:08

How would a sale of $400 of inventory on credit affect the balance sheet if the cost of the inventory sold was $160? A. It would increase noncash assets by $400 and increase equity by $400 B. It would decrease noncash assets by $160 and decrease equity by $160 C. It would increase cash by $400 and increase equity by $400 D. Both A and B, above happen simultaneously E. None of the above

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Answers (1)

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Vance Roach · Answer 1

D. Both A and B, above happen simultaneously

Explanation:

If the sale of inventory is made on a credit basis, it impacts the following accounts

1. Accounts receivable account would increase by $400

2. Inventory account would decrease by $160

3. The net income would be increased by $240 ($400 - $160) and automatically, the shareholder equity will also increase by $240

So, the correct option is d.