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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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A company forgets to record a purchase on credit in the purchases account, but ending inventory is correct. The effect of this mistake in the current year is:

Chapter 8, Problem 10MC, A company forgets to record a purchase on credit in the purchases account, but ending inventory is

To determine

Write the correct option.

Explanation

Inventory errors: It refers to the errors that result in overstatement or understatement of ending inventory caused due to wrong physical inventory count or wrong price fixation of the inventory quantities. It also includes overstatement or understatement of purchases caused to wrong inventory cut-off. These errors are rectified by reversing the original erroneous entry and recording the correct entry.

Analysis of given situation:

In the current year the company forgets to record credit purchase in the purchase account however, ending inventory is correct. As a result of which in income statement the net income is overstated because purchases are understated and therefore cost of goods sold is understated...

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