Question

The following entry was recorded in the books of Brighty Company. Mar. 31 Cost of Goods Sold 18,000 Inventory 18,000 Recorded cost of goods sold. What is the impact of this entry on the accounting equation

Answer 1

Answer:

a decrease in assets and a decrease in equity.

Explanation:

With regards to the above, cost of goods sold refers to the cost of a product either to a retailer or a producer. Higher cost of goods sold means that little profit is made by a company and vice versa. It is known to be a business expense, hence expenses are usually debited thus reduces equity, while a credited inventory decreases assets because as money is taken out of the business, it's assets decreases.

It therefore means that a debited cost of goods sold decreases equity, while a credited inventory decreases asset.