Question

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

Answer 1

D. Both A and B, above happen simultaneously

Step-by-step explanation:

If the sale of inventory is made on a credit basis, it impacts the following accounts

1. Accounts receivable account would increase by $400

2. Inventory account would decrease by $160

3. The net income would be increased by $240 ( $400 - $160) and automatically, the shareholder equity will also increase by $240

So, the correct option is d.