Assume that a $400 purchase invoice received close to year-end is not recorded in fiscal 2019, but the inventory is appropriately included in the ending inventory count. What impact will this have on fiscal 2020 financial reporting?
A)Cost of sales is overstated by $400.
B)Gross margin is overstated.
C)Cost of goods available for sale is understated.
D)There is no effect on fiscal 2020.

Question

Quizplus · Accepted Answer

By not recording the $400 purchase invoice in fiscal 2019, the cost of goods sold (COGS) in fiscal 2020 will be overstated when the invoice is eventually recorded. This is because the expense related to the inventory will be recognized in the wrong period, increasing COGS in 2020 rather than in 2019 where it belongs.

Assume That a $400 Purchase Invoice Received Close to Year-End