Credit Sale Increases Assets and Equity by Gross Profit

Steps:

• Inventory (current asset) decreases by $50, the original cost.
• Accounts receivable (current asset) increases by $80, the selling price.
• Net change in current assets: +$80 -$50 = +$30.
• Gross profit of $30 ($80 - $50) increases owner's capital via retained earnings.

Why D is correct:

• Under accrual accounting, credit sales increase assets by the selling price and equity by the profit, per the accounting equation (Assets = Liabilities + Equity).

Why the others are wrong:

• A: Wrong direction for both; assets and capital rise, not fall.
• B: Assets decrease is incorrect; net assets increase by profit.
• C: Capital decreases ignores the profit recognition.

Final answer: D