A purchase on credit is omitted from the purchase account in error, ending inventory is correct. The effect on the current year financial statements would be net income is understated because purchases are understated also causing cost of goods sold to be understated.

Question

Quizplus · Accepted Answer

If purchases are understated, cost of goods sold is also understated, which would overstate net income, not understate it.

A Purchase on Credit Is Omitted from the Purchase Account