Alpha Company uses its sales invoices for posting perpetual inventory records. Inadequate control procedures over the invoicing function allow goods to be shipped that are not invoiced. The inadequate control procedures could cause an:
A) understatement of revenues, receivables and inventory.
B) overstatement of revenues and receivables and an understatement of inventory.
C) understatement of revenues and receivables and an overstatement of inventory.
D) overstatement of revenues, receivables and inventory.

Question

Quizplus · Accepted Answer

The inadequate control procedures would result in goods being shipped that are not invoiced. This would lead to an understatement of revenues and receivables because those transactions have not been recorded. At the same time, the inventory records would show an overstatement because the inventory has been reduced but not recorded as sold. Therefore, choice C is the best answer.

Alpha Company Uses Its Sales Invoices for Posting Perpetual Inventory