Assume that a $100 purchase invoice received close to year-end is not recorded in fiscal 2016,but the inventory is appropriately included in the ending inventory count.What impact will this have on fiscal 2016 financial reporting?
A)Cost of sales is understated by $100.
B)Gross margin is understated.
C)Sales are understated by $100.
D)Operating profit is understated by $100.

Question

Quizplus · Accepted Answer

If the purchase invoice is not recorded, the cost of the items purchased will not be included in the cost of sales calculation, resulting in an understatement of cost of sales by $100. This will also result in an understatement of operating profit, as expenses are not properly accounted for. Gross margin and sales should not be affected if ending inventory is appropriately included in the count.

Assume That a $100 Purchase Invoice Received Close to Year-End