Question

Which of these will decrease the inventory account? (Check all that apply.)

a. paying cash for inventory previously purchased on account
b. purchasing inventory on account
c. collecting cash for inventory previously sold on account
d. purchasing inventory for cash
e. selling inventory for cash
f. selling inventory on account

Answer 1

Decreasing the inventory account involves actions that remove items from inventory, such as selling inventory for cash or on account. Purchasing inventory or paying for inventory previously purchased does not decrease the inventory account.

Step-by-step explanation:

The inventory account represents the value of a company's products that are ready for sale but have not yet been sold. When looking for actions that will decrease the inventory account, you need to consider transactions that effectively remove items from inventory.

• Selling inventory for cash will decrease the inventory account because goods are leaving inventory and being exchanged for cash.
• Selling inventory on account also decreases the inventory account as inventory is converted into accounts receivable (a claim for payment from the customer in the future).

It's important not to confuse the purchase of inventory (whether by cash or on account) or the payment of inventory previously bought on credit with the reduction of the inventory account. These actions affect the cash, accounts payable, or accounts receivable accounts, but not the inventory account.