Nicklaus Company sold inventory costing $1,000 for $1,400 on account.Nicklaus Company operates under the accrual basis.What effect will the transaction have on the liabilities and owners' equity of the company?

Question

Quizplus · Accepted Answer

The sale of inventory will increase the company's revenues by $1,400, which in turn will increase owners' equity by $1,400. Since the sale was made on account, the company's accounts receivable (a type of liability) will also increase by $1,400. However, since the question is only asking about the effect on liabilities and owners' equity, the correct answer is C - owners' equity will increase by $400.

Nicklaus Company Sold Inventory Costing $1,000 for $1,400 on Account