On December 15, 2014, Transport Company accepted delivery of merchandise that it purchased on credit. As of December 31, 2014, the company had neither recorded the transaction nor included the merchandise in its ending inventory amount because the seller's invoice had not been received. The effect of this omission on its balance sheet at December 31, 2014, (end of the accounting period) was that

Question

Quizplus · Accepted Answer

Since the merchandise was not recorded in the ending inventory, the inventory balance will be understated. Similarly, since the purchase was made on credit, the accounts payable balance will also be understated. However, net income will not be affected since the transaction was not recorded. Therefore, the correct answer is that inventory and accounts payable were understated but net income was correct.

On December 15, 2014, Transport Company Accepted Delivery of Merchandise