MGTA02H3 Chapter : About Balance Sheets
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MGTA02H3 Full Course Notes
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You have a balance sheet, and you have some transactions that will change it. Since you have sold it, you no longer have it, and you must reduce the inventory by the value of the item sold. So you determine the value at which you were carrying that item in inventory. That is the value you recorded when you put the item into inventory. But something happened when you sold the item. If you got cash for the item, you now have more cash than you had before. So you increase the cash line by the amount you received in cash for the item. You have traded one asset (the inventory item) for another (the cash). Suppose the item of inventory was recorded in inventory at . If you sold it for , you simply transferred the in value from inventory to cash. But you usually sell items for more than their cost to you.
