Which of the following best describes the Balance Sheet after the sale of the iPads (cash increases, inventory decreases)?

• A. Cash up $16; Inventory down $10; Equity up $6; Liabilities unchanged
• B. Cash down $16; Inventory up $10; Equity up $6
• C. Cash up $6; Inventory down $10; Equity up $6
• D. Cash up $16; Inventory up $10; Liabilities unchanged

Answer: (A)

When inventory is sold for cash, three things happen on the balance sheet: cash increases by the sale price, inventory decreases by the cost of the goods sold, and equity increases by the profit earned from the sale (net income flowing into retained earnings). Liabilities don’t change unless there’s a new obligation.

Here, cash rises by 16 and inventory falls by 10. The cost of the goods sold is 10, so gross profit is 6. That 6 increases equity (retained earnings). No liabilities change. So the balance sheet would show cash up 16, inventory down 10, equity up 6, and liabilities unchanged. This matches the described scenario.