What is the overall effect on the statement of financial position when the business sells inventory for a profit of $3,000?
A) Increase total assets $3,000; decrease total equity $3,000.
B) Increase total assets $3,000; increase total equity $3,000.
C) No change in total assets; no change in total equity.
D) None of the above.

Question

Quizplus · Accepted Answer

Selling inventory for a profit of $3,000 will increase total assets by $3,000 as cash is received from the sale. At the same time, the profit earned from the sale will increase net income, which in turn increases total equity by the same amount of $3,000. Therefore, the overall effect on the statement of financial position is an increase in both total assets and total equity by $3,000 each.

What Is the Overall Effect on the Statement of Financial