At the end of the month BBB Ltd determined that the cost to them of goods that had been sold during the month was $125,000.How would this information be recorded?
A)The information is not recorded as no economic event had taken place.
B)A decrease in inventory of $125,000 and an increase in expenses of $125,000.
C)An increase in inventory of $125,000 and a decrease in cash of $125,000.
D)An increase in expenses of $125,000 and an increase in accounts payable of $125,000

Question

Quizplus · Accepted Answer

When goods are sold, it is an economic event that needs to be recorded. The cost of goods sold is an expense, so there will be an increase in expenses of $125,000. Additionally, the inventory that was sold will decrease by $125,000. Therefore, the answer is B. Option A is incorrect because an economic event did occur. Option C is incorrect because there is no decrease in cash, and option D is incorrect because there is no increase in accounts payable as the cost of goods sold is already recorded as an expense.

At the End of the Month BBB Ltd Determined That