Final answer:
It is true that changes in inventory must be considered in the accounting equation due to the dual effect of transactions, which asserts that every transaction affects at least two accounts.
Therefore, the correct answer is: option a) 'true'.
Step-by-step explanation:
The accounting equation represents that assets equal the sum of liabilities and owner's equity. The dual effect principle in accounting states that every transaction affects at least two accounts in the equation.
Therefore. the statement that when considering the accounting equation and the dual effect, we need to consider whether inventory has gone up or down is true.
For instance, when inventory increases (an asset), the business may have purchased more goods, increasing either liabilities (if bought on credit) or decreasing assets such as cash.
Similarly, if inventory decreases due to sales, income is generated, increasing owner's equity. So, changes in inventory levels directly impact the accounting equation and demonstrate the dual effect of transactions.