What outcome occurs when an expense is recorded for inventory received?

• A. Both Inventory Asset and Accounts Payable increase
• B. Inventory Asset decreases and Cash increases
• C. Inventory Asset increases and Accounts Payable increases
• D. Inventory Asset decreases and Cash decreases

Answer: (C)

When an expense is recorded for inventory received, the correct outcome involves an increase in the Inventory Asset account and a simultaneous increase in the Accounts Payable account. This reflects the fact that inventory is being added to the company's assets, indicating that the company has received goods it will sell in the future while also incurring a liability because payment for that inventory is due.

Recording the transaction in this manner allows the company's financial statements to accurately reflect both the current assets it holds and its current liabilities. As inventory is received, it becomes an asset that the company can use to generate revenue. The increase in Accounts Payable signals that the company has not yet paid for the inventory, creating a liability that needs to be settled in the future.

This accounting treatment aligns with double-entry bookkeeping principles, ensuring that every transaction affects at least two accounts, and maintains the balance in the accounting equation (Assets = Liabilities + Equity).