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

Quizplus · Accepted Answer

The sale of inventory on credit increases accounts receivable (a noncash asset) by $400 and increases equity by $240 (revenue minus cost of goods sold). Simultaneously, inventory (a noncash asset) decreases by $160, reflecting the cost of the inventory sold. This scenario is a combination of effects described in options A and B.

How Would a Sale of $400 of Inventory on Credit