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 goods available for sale is understated by $1,000.
C)Cost of sales is overstated by $1,000.
D)Beginning inventory is overstated by $1,000.

Question

Quizplus · Accepted Answer

Since the inventory was excluded in error during the ending inventory count, cost of goods available for sale will be understated by $1,000. This will result in an understatement of cost of sales by $1,000 in fiscal 2020, which will in turn result in an overstatement of gross margin by $1,000. However, the error will not impact beginning inventory from the previous year.

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