What happens to inventory when it is sold?

What happens to inventory when it is sold?

• A. It becomes a revenue
• B. It becomes an expense
• C. It remains an asset
• D. It becomes a liability

Answer: (B)

When inventory is sold, the cost attached to that inventory is moved from the balance sheet into the income statement as an expense called cost of goods sold. The sale itself creates revenue, but the inventory item is consumed and the asset is reduced accordingly, so the inventory no longer remains as an asset. For example, if inventory cost $50 and is sold for $80, you record revenue of $80 and the cost of goods sold of $50, while reducing Inventory by $50. The overall effect is that the inventory item becomes an expense (COGS) rather than staying as an asset.

When inventory is sold, the cost attached to that inventory is moved from the balance sheet into the income statement as an expense called cost of goods sold. The sale itself creates revenue, but the inventory item is consumed and the asset is reduced accordingly, so the inventory no longer remains as an asset.

For example, if inventory cost $50 and is sold for $80, you record revenue of $80 and the cost of goods sold of $50, while reducing Inventory by $50. The overall effect is that the inventory item becomes an expense (COGS) rather than staying as an asset.