If total assets decrease, then which of the following statements is true?
A) Liabilities must increase and retained earnings must decrease.
B) Common stock must decrease and retained earnings must increase.
C) Liabilities, common stock, or retained earnings must decrease.
D) Liabilities, common stock, or retained earnings must increase.

Question

Quizplus · Accepted Answer

Total assets can decrease due to a decrease in any of its components such as cash, accounts receivable, inventory, property, plant and equipment, and intangibles. If any of these components decrease, it can lead to a decrease in either liabilities, common stock, or retained earnings. For example, a decrease in inventory would lead to a decrease in assets and retained earnings as the cost of goods sold would increase, while a decrease in property, plant and equipment would lead to a decrease in assets and common stock as the company would sell these assets and receive cash in return. Therefore, it's not necessary that liabilities or retained earnings would increase if total assets decrease.

If Total Assets Decrease, Then Which of the Following Statements