What is the overall effect on the balance sheet when the business sells inventory for a profit of $3,000?
A) no change in total assets; no change in total equity
B) increase total assets by $3,000; increase total equity by $3,000
C) increase total assets by $3,000; decrease total equity by $3,000
D) none of the above

Question

Quizplus · Accepted Answer

When the business sells inventory for a profit of $3,000, there will be an increase in cash or accounts receivable (an asset account) by $3,000. At the same time, the cost of goods sold (an expense account) will also increase by the cost of the inventory sold. However, since the selling price was higher than the cost of the inventory, the business will have a gross profit of $3,000. This gross profit will increase the net income (an equity account) by $3,000. As a result, the balance sheet will show an increase in total assets and total equity by $3,000 each.

What Is the Overall Effect on the Balance Sheet When