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 2019 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

If the inventory was excluded in error during the ending inventory count, it means that the inventory (which was supposed to be included in the count) was not subtracted from the cost of sales. Therefore, the cost of sales is understated by $1,000, which will result in an overstatement of gross margin. Beginning inventory is not affected by this error, and inventory is not overstated on the balance sheet as it was excluded from the ending inventory count.

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