Additional credit sales of $2m (cost price $1.5m)are made on credit.This transaction will:
A) increase net profit,increase cash and increase total assets.
B) increase net profit,increase total assets but not affect cash.
C) increase net profit,and not affect cash or total assets.
D) increase net profit,increase cash.

Question

Quizplus · Accepted Answer

The transaction of additional credit sales of $2m will increase the total assets of the company by $2m. However, since it is a credit sale, cash will not be affected. The cost of goods sold for this transaction is $1.5m, which means the gross profit will increase by $0.5m ($2m - $1.5m). This increase in gross profit will eventually translate into an increase in net profit (after deducting other expenses such as operating expenses, taxes, etc.). Therefore, option B is the best choice.

Additional Credit Sales of $2m (Cost Price $1