A cutoff test reveals goods received and counted in inventory but not recorded in purchases.The effect on the financial statements is
A) Net income is overstated.
B) Net income is understated.
C) There is no effect because the inventory records were adjusted to the physical count.
D) Net income is not affected until the subsequent period.

Question

Quizplus · Accepted Answer

When goods are received and counted in inventory but not recorded in purchases, the inventory is overstated, leading to an overstatement of net income because the cost of goods sold is understated.

A Cutoff Test Reveals Goods Received and Counted in Inventory