If Inventory increases by 10 and is paid for in cash, which statement about assets is true?

If Inventory increases by 10 and is paid for in cash, which statement about assets is true?

• A. Cash up 10; Inventory up 20
• B. Cash down 10; Inventory up 10; assets unchanged
• C. Cash up 10; Inventory down 10
• D. Cash up 20; Inventory up 10

Answer: (B)

This tests how asset balances change when you convert one asset into another. Paying cash for inventory is an internal swap of resources: you give up cash and acquire inventory of the same value. So cash decreases by 10 and inventory increases by 10, leaving total assets unchanged. That description—cash down 10, inventory up 10, assets unchanged—is the accurate reflection of the transaction. The other statements would require cash to increase, or inventory to decrease, or both assets to rise, which isn’t consistent with paying cash for the inventory.

This tests how asset balances change when you convert one asset into another. Paying cash for inventory is an internal swap of resources: you give up cash and acquire inventory of the same value. So cash decreases by 10 and inventory increases by 10, leaving total assets unchanged. That description—cash down 10, inventory up 10, assets unchanged—is the accurate reflection of the transaction. The other statements would require cash to increase, or inventory to decrease, or both assets to rise, which isn’t consistent with paying cash for the inventory.