ANSWERS: 5
  • No. It could mean a decrease in purchasing, an increase in sales, or several other things.
  • Not necessarily... it could be an increase in sales...
  • Perhaps they implimented JIT
  • A decrease in any area of the accounting equation is a decrease on the other side (and probably several other debits and credits). It has been quite a while since I've taken accounting, but I do not think it is an increase in expense. As best I can remember, I believe it is encapsulated in the "capital" area of the equation and ledgers. If inventory was initially ovestated, it will represent a loss in the final balance sheet when compared to the previous (unadjusted) balance sheet. It should show as a loss because of the decreased capital.
  • When dealing with accounting, it can be considered an increase in sales; however, when you consider other aspects, it can turn tricky. If the company isn't making purchases for future inventory, this could represent a loss in future sales. For example, if you had 100 shirts, and sold 70...you now have a decrease in inventory and an increase in sales. If you dare not order more and only keep your 30 shirts to sale and you have 40 people wanting to buy a shirt, you just lost sale revenue on those 10 shirts you don't have in stock. In that case, the decrease in inventory caused a loss on sales.

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