The sale of an asset on credit for what it cost: Group of answer choices increases assets and liabilities. decreases assets and liabilities. leaves total assets unchanged. decreases assets and increases liabilities.
Question
The sale of an asset on credit for what it cost: Group of answer choices
increases assets and liabilities.
decreases assets and liabilities.
leaves total assets unchanged.
decreases assets and increases liabilities.
Solution
The sale of an asset on credit for what it cost leaves total assets unchanged.
Here's why:
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When a company sells an asset on credit, it is essentially exchanging one asset (the asset sold) for another asset (Accounts Receivable).
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If the asset is sold for what it cost, the value of the asset sold is equal to the value of the Accounts Receivable created by the sale.
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Therefore, one asset decreases (the asset sold) and another asset increases (Accounts Receivable) by the same amount. This means that the total assets of the company remain unchanged.
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The sale does not affect liabilities, because the company is not incurring any new obligations as a result of the sale. Therefore, the sale does not increase or decrease liabilities.
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