A company using a periodic inventory system neglected to record a purchase of merchandise on credit at year end. This merchandise was omitted from the year end physical count. How will these errors affect assets, liabilities, owners' equity at year end and net earnings for the year? $\begin{array} { | l | l | l | l | l | }
\hline \text { Assets } & \text { Liabilities } & \text { Owners' Equity } & \text { Net Earnings } \
\hline 1 & \text { No effect } & \text { Overstate } & \text { understate } & \text { Understate } \
\hline 2 & \text { No effect } & \text { Understate } & \text { Overstate } & \text { Overstate } \
\hline 3 & \text { Understate } & \text { No effect } & \text { Understate } & \text { Understate } \
\hline 4 & \text { Understate } & \text { Understate } & \text { No effect } & \text { No effect } \
\hline
\end{array}$
A) Choice 1
B) Choice 2
C) Choice 3
D) Choice 4

Question

A company using a periodic inventory system neglected to record a purchase of merchandise on credit at year end. This merchandise was omitted from the year end physical count. How will these errors affect assets, liabilities, owners' equity at year end and net earnings for the year? $\begin{array} { | l | l | l | l | l | } 
\hline \text { Assets } & \text { Liabilities } & \text { Owners' Equity } & \text { Net Earnings } \
\hline 1 & \text { No effect } & \text { Overstate } & \text { understate } & \text { Understate } \
\hline 2 & \text { No effect } & \text { Understate } & \text { Overstate } & \text { Overstate } \
\hline 3 & \text { Understate } & \text { No effect } & \text { Understate } & \text { Understate } \
\hline 4 & \text { Understate } & \text { Understate } & \text { No effect } & \text { No effect } \
\hline
\end{array}$
A) Choice 1
B) Choice 2
C) Choice 3
D) Choice 4

Quizplus · Accepted Answer

Neglecting to record a purchase of merchandise on credit at year-end and omitting it from the year-end physical count would understate assets (inventory not added) and understate liabilities (credit purchase not recorded). Owners' equity and net earnings would not be directly affected by this error in the current period, as the omission impacts both assets and liabilities equally without an immediate effect on net income or owners' equity.

A Company Using a Periodic Inventory System Neglected to Record