Assume that a $100 purchase invoice received close to year-end is not recorded in fiscal 2012, but the inventory is appropriately included in the ending inventory count. What impact will this have on fiscal 2012 financial reporting?
A)Cost of sales is understated by $100.
B)Gross margin is understated.
C)Sales are understated by $100.
D)Operating profit is understated by $100.

Question

Quizplus · Accepted Answer

Since the purchase invoice of $100 is not recorded, it will not be included in the cost of goods sold (COGS) calculation, resulting in an understated COGS. As a result, cost of sales is understated by $100. This will indirectly impact the gross margin and operating profit as well, but the direct impact is on cost of sales. Sales are not affected by this transaction as the inventory is correctly included in the ending inventory count.

Assume That a $100 Purchase Invoice Received Close to Year-End