Cait Company sold $5,000 of inventory on December 31, 2011. This sale was recorded in the books and was also included in the ending inventory count. How will this information affect the financial statements for 2012?

Question

Quizplus · Accepted Answer

The ending inventory for 2011 is overstated by $5,000, which means the beginning inventory for 2012 is also overstated by $5,000. This results in an understated cost of goods sold for 2012, leading to an overstated gross margin by $5,000.

Cait Company Sold $5,000 of Inventory on December 31, 2011