Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2012, but the inventory was excluded in error during the ending inventory count. What impact will this have on fiscal 2013 financial reporting?
A)Gross margin is understated by $1,000.
B)Cost of goods available for sale is overstated by $1,000.
C)Cost of sales is understated by $1,000.
D)Beginning inventory is overstated by $1,000.

Question

Quizplus · Accepted Answer

Since the inventory was excluded from the ending inventory count, the cost of sales for fiscal 2012 will be understated by $1,000, meaning that gross margin will be overstated by $1,000. As a result, this will have an adverse effect on fiscal 2013 financial reporting, as it will result in an overstatement of the beginning inventory for fiscal 2013, i.e., Beginning inventory is overstated by $1,000.

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