Question

Sabic Industries sold inventory costing AED1400 on cash in February 2019. It was able to sell...

  1. Sabic Industries sold inventory costing AED1400 on cash in February 2019. It was able to sell these products for AED2000. What effect will the sale transaction have on the asset, liability and owners' equity side of the balance sheet?
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Answer #1

Ans : a) Inventory costing AED 1400 is sold for AED 2000 cash. Since Inventory and Cash are both Assets  thus Assets will decrease by AED 1400 on Account of inventory sold and Increase by AED 2000 on Account of Cash Received.

Hence Net Effect of Sale transaction on Asset will be Increase in Asset side by AED 600.

b) Inventory costing AED 1400 is sold for AED 2000 , thus Net Profit on Sale of Inventory will be AED 600. Since Net Profit belongs to Equity Shareholders, thus increase in net profit will increase owner's equity.

Net Effect of sale transaction on liability and owners' equity will be Increase in Liability and Owner's Equity side by AED 600.

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