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 2012 financial reporting?
A)Beginning inventory is understated by $1,000.
B)Gross margin is understated by $1,000.
C)Cost of sales is understated by $1,000.
D)Inventory is overstated on the balance sheet.

Question

Quizplus · Accepted Answer

Since the inventory was excluded, the cost of goods sold will be understated by $1,000, resulting in an understatement of the gross margin by $1,000. Therefore, choice B is incorrect. Also, there is no impact on the beginning inventory or the balance sheet, so choices A and D are incorrect. Choice C is correct as the cost of sales is understated by $1,000.

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