What effect does selling inventory have on both cash and accounts receivable?

Selling inventory typically involves receiving cash from a customer or generating an account receivable if the sale was made on credit. When cash is received directly from a customer, the cash account increases since the business is receiving funds for the goods sold. If the sale is made on credit, accounts receivable increases instead because the business expects to collect the amount owed in the future.

In the case where cash increases and accounts receivable decreases, it usually signifies that inventory was sold for cash. This means that the sale transaction results in immediate cash inflow and does not affect accounts receivable, as there is no credit extended to the customer.

This understanding aligns closely with the dynamics of inventory sales. When inventory is sold for cash, the impact is an increase in cash and no corresponding increase in accounts receivable since there’s no amount owed by a customer; the funds are received at the point of sale. Therefore, the correct choice captures this immediate transaction effect accurately.