Assume that a $1,000 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 2019 financial reporting?
A)Purchases are overstated.
B)Purchases are understated.
C)Gross margin is understated.
D)Cost of sales is overstated.

Question

Quizplus · Accepted Answer

CIf a $1,000 purchase invoice received close to year-end is not recorded, purchases will be understated because the expense associated with acquiring inventory has not been recorded. Since the inventory is included in the ending inventory count but the cost is not recorded, the cost of goods sold will be understated, leading to an overstatement of gross margin.

Assume That a $1,000 Purchase Invoice Received Close to Year-End