Alpha Company uses its sales invoices for posting perpetual inventory records.Inadequate control activities over the invoicing function allow goods to be shipped that are not invoiced.The inadequate control activities 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

Since the goods are being shipped but not invoiced, there will be a understatement of revenues and receivables. However, since the inventory has not been properly recorded, there will be an overstatement of inventory. Therefore, the correct answer is option C.

Alpha Company Uses Its Sales Invoices for Posting Perpetual Inventory