Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2016,but the inventory was excluded in error during the ending inventory count.What impact will this have on fiscal 2017 financial reporting?
A)Gross margin is understated by $1,000.
B)Cost of goods available for sale is overstated by $1,000.
C)Cost of sales is understated by $1,000.
D)Beginning inventory is overstated by $1,000.

Question

Quizplus · Accepted Answer

If the inventory was excluded from the ending inventory count, then it means that the cost of goods sold was overstated in fiscal 2016. Therefore, the cost of sales in fiscal 2017 will be understated by the amount of the excluded inventory, which is $1,000 in this case. Gross margin is calculated as sales revenue minus cost of sales, so this error will not affect the gross margin. Cost of goods available for sale and beginning inventory are not affected by this error.

Assume That a Purchase Invoice for $1,000 Was Appropriately Recorded