Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2016,but the inventory was excluded in error during the ending inventory count.What impact will this have on fiscal 2017 financial reporting?
A)Gross margin is understated by $1,000.
B)Cost of goods available for sale is understated by $1,000.
C)Cost of sales is overstated by $1,000.
D)Beginning inventory is overstated by $1,000.

Question

Quizplus · Accepted Answer

Excluding the inventory in the ending inventory count means that the cost of goods available for sale is understated by $1,000. This means that the cost of goods sold for the year will be overstated by $1,000 (since cost of goods sold = beginning inventory + purchases - ending inventory). Therefore, gross margin will also be understated by $1,000. The beginning inventory balance for the next fiscal year is not affected by this error.

Assume That a Purchase Invoice for $1,000 Was Appropriately Recorded