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

If goods are invoiced but not shipped, revenues and receivables are overstated because the sales are recorded without actual delivery. Inventory is understated because the goods are still in stock but are not accounted for properly.

Alpha Company Uses Its Sales Invoices for Posting Perpetual Inventory