Alpha Company uses its sales invoices for posting perpetual inventory records. Inadequate control activities over the invoicing function allow goods to be invoiced that are not shipped. The inadequate control activities could cause an:
A)understatement of revenues, receivables, and inventory.
B)overstatement of revenues and receivables and an understatement of inventory.
C)understatement of revenues and receivables and an overstatement of inventory.
D)overstatement of revenues, receivables, and inventory.

Question

Quizplus · Accepted Answer

Invoicing goods that are not shipped would lead to recording revenue and receivables for sales that did not actually occur, thus overstating revenues and receivables. Since the goods were not shipped but invoiced, they would be incorrectly removed from inventory, leading to an understatement of inventory.

Alpha Company Uses Its Sales Invoices for Posting Perpetual Inventory