A company using the periodic inventory system correctly recorded a purchase of merchandise,but the merchandise was not included in the physical inventory count at the end of the accounting period.The error caused which of the following?
A)An understatement of both net income and inventory.
B)An overstatement of inventory,purchases,and accounts payable.
C)An understatement of inventory,purchases,and accounts payable.
D)An overstatement of net income and inventory.

Question

Quizplus · Accepted Answer

The error of not including the purchased merchandise in the physical inventory count would result in the inventory being understated because the goods that were bought were not counted. Consequently, the cost of goods sold (COGS) would be understated, leading to an overstatement of net income. However, since the purchase was correctly recorded, it does not affect purchases or accounts payable directly in terms of overstatement or understatement. Therefore, the correct impact is an understatement of both net income (due to the overstatement initially, but when corrected, it shows as an understatement) and inventory.

A Company Using the Periodic Inventory System Correctly Recorded a Purchase