A retail organization mistakenly did not include $10,000 of inventory in the physical count at the end of the year. What was the impact to the organization's financial statements?
A) Cost of sales and net income are understated.
B) Cost of sales and net income are overstated.
C) Cost of sales is understated and net income is overstated.
D) Cost of sales is overstated and net income is understated.

Question

Quizplus · Accepted Answer

The missing inventory will result in an understatement of ending inventory, which will lead to an overstatement of cost of sales and an understatement of net income.

A Retail Organization Mistakenly Did Not Include $10,000 of Inventory