Axelrods Inc.uses a perpetual inventory system.In Dec 2013, the accountant neglected to record a purchase of merchandise on account at year end.This merchandise was also omitted from the year-end physical count.How will this error affect assets, liabilities, and shareholders' equity at year end and net income for the year? $\begin{array}{llll}&\text { Assets } & \text { Liabilities } & \text { Shareholders' Equity }& \text { Net Income }\\hline
A.&\text { No effect } & \text { Understated } & \text { Overstated } & \text { Overstated. } \
B.&\text { No effect } & \text { Overstated } & \text { Understated } & \text { Understated. } \
C.&\text { Understated } & \text { Understated } & \text { No effect } & \text { No effect. } \
D.&\text { Understated } & \text { No effect } & \text { Understated } & \text { Understated }
\end{array}$
A)Option A
B)Option B
C)Option C
D)Option D

Question

Quizplus · Accepted Answer

Since the purchase was not recorded, both inventory (an asset) and accounts payable (a liability) are understated. The error does not directly affect shareholders' equity or net income because it involves an unrecorded purchase, not an expense recognition issue.

Axelrods Inc A)Option a B)Option B C)Option C D)Option D

Axelrods Inc A)Option a
B)Option B
C)Option C
D)Option D