If a company sold inventory that had cost 5,000 for 8,000, where would you place these figures on the balance sheet?
To determine where to place the figures of the inventory sale on the balance sheet, we need to consider the accounting equation, which states that Assets = Liabilities + Equity. The balance sheet is divided into three sections: assets, liabilities, and equity.
In this case, we have information about the sale of inventory. The original cost of the inventory was $5,000, and it was sold for $8,000. This means that the company made a profit of $3,000 on the sale.
1. Assets:
- Cash: After the sale, the company would have received $8,000 in cash, which is the revenue from the sale. This amount should be added to the "Cash" line item under the assets section.
- Cost of Goods Sold (COGS): The COGS represents the cost of the inventory that was sold. In this case, it would be $5,000. This amount should be deducted from the "Inventory" line item under the assets section.
2. Equity:
- Retained Earnings: The profit made on the sale should be added to the retained earnings of the company. In this case, the profit is $3,000, so it should be added to the "Retained Earnings" line item under the equity section.
In summary, on the balance sheet:
- $8,000 should be added to the "Cash" line item under assets.
- $5,000 should be deducted from the "Inventory" line item under assets.
- $3,000 should be added to the "Retained Earnings" line item under equity.