Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2019, but the inventory was excluded in error during the ending inventory count. What impact will this have on fiscal 2020 financial reporting?
A)Gross margin is understated by $1,000.
B)Cost of sales is overstated by $1,000.
C)Ending inventory is not affected by the prior year inventory counting error.
D)Beginning inventory is overstated by $1,000.

Question

Quizplus · Accepted Answer

DIf the inventory was excluded in error during the ending inventory count of fiscal 2019, it means that the inventory was not accounted for in the ending inventory of 2019. This error will carry over to fiscal 2020 as the ending inventory of 2019 becomes the beginning inventory of 2020. Therefore, the beginning inventory for fiscal 2020 will be understated (not overstated), as the $1,000 inventory was not included. However, since the inventory was actually purchased and should have been included, the error in counting does not affect the actual ending inventory for fiscal 2020, assuming it is correctly counted at the end of 2020. Thus, the correct statements are that the ending inventory is not affected by the prior year inventory counting error (C), and the explanation regarding the beginning inventory being overstated (D) is incorrect based on the premise but correctly identifies that there is an impact on inventory values due to the error.

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