After selling iPods, how does the Balance Sheet reflect the changes?

When a company sells iPods, it receives cash in exchange for the products. This transaction directly impacts the Balance Sheet by increasing the company's cash, which is an asset. At the same time, the company recognizes revenue, which contributes to net income on the income statement. However, it's important to note that cash is not merely increasing by net income itself; rather, the cash received from the sale is part of the operational activity that contributes to overall profitability.

This activity increases the total assets because the cash received from the customers enhances the cash balance. Essentially, once a sale is made, the company also expects a cost of goods sold (COGS) that will reduce net income; however, the transaction initially boosts cash in the assets section.

Understanding this help differentiate it from other options. For instance, while assets increase, liabilities weren't directly impacted by the sale unless there were terms involving deferring payment, which isn't mentioned. Shareholders' equity consists of retained earnings and might be influenced indirectly through net income, but it doesn't decrease; it would generally increase if profits are retained. Lastly, assets do change due to the inflow of cash from the sale, so the notion that they remain unchanged is incorrect. Therefore, recognizing the dynamics of cash inflow