A company fails to record one storeroom full of inventory in its year-end inventory records.As a result, this will cause:
A) an overstatement of cost of goods sold for the current year.
B) an overstatement of inventory on the year-end balance sheet.
C) an overstatement of retained earnings at the end of the year.
D) an understatement of gross profit in the following year.

Question

Quizplus · Accepted Answer

Failing to record inventory leads to an understatement of inventory on the balance sheet and an overstatement of cost of goods sold, as the missing inventory would have reduced the cost of goods sold if recorded.

A Company Fails to Record One Storeroom Full of Inventory