Inflation has its major impact on balance sheets in which of the following areas?
A) Inventory and accounts payable
B) Plant and equipment and long-term debt
C) Plant and equipment and inventory
D) Interest expense and earnings per share

Question

Quizplus · Accepted Answer

Inflation has a major impact on balance sheets in the areas of plant and equipment and inventory. As the cost of goods sold and the value of fixed assets increase with inflation, it can result in an overstatement of these assets on the balance sheet. Similarly, inventory that was purchased at a lower cost but is worth more in a higher inflationary environment can also result in an overstatement of assets. This can affect financial ratios and the perception of a company's financial health.

Inflation Has Its Major Impact on Balance Sheets in Which