Q: A normal sale of inventory increases net assets (i.e., shareholders' equity).
A: True or False
Answer
· TRUE.
A normal sale of inventory increases net assets.
This is because when sale happens:
>Inventory is decreased by cost of units sold, and
>Cash is increased or Accounts receivables (in case of sale on
account) is increased by the amount of sales revenue.
· Since amount of sales revenue is
MORE than amount of cost of goods sold,
the INCREASE in assets (Cash or account receivables) WILL BE MORE
than DECREASE in assets (Inventory).
· That’s why, sale of inventory increases net assets (ie Stockholder’s Equity).
· Note:
Below diagram template is ALL CORRECT.
But please make a correction in transaction ‘E’.
What you entered for “e(1)” should be entered in “e(2)”.
This is because inventory purchase (e1) is to be recorded before
inventory is sold (e2).
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