Question

The 2nd entry would show an increase in inventory which is an asset, and a decrease in the cost of goods sold expense, an equity account. A decrease in an expense account causes equity in increase. Increases in equity are recorded as a credit.

True
False?

Answer 1

An increase in inventory and a decrease in the cost of goods sold expense will cause equity to increase, which is recorded as a credit on the right side of a T-account.

Step-by-step explanation:

The statement in the question is correct. An increase in inventory, which is an asset, would be recorded as a debit on the left side of the T-account. At the same time, a decrease in the cost of goods sold expense, which is an equity account, would be recorded as a credit on the right side of the T-account. This means that the statement, 'A decrease in an expense account causes equity to increase,' is true. Increases in equity are recorded as credits on the right side of a T-account.