A retail organization mistakenly did not include $10,000 of inventory in the physical count at the end of the year. What was the impact to the organization's financial statements?
A retail organization mistakenly did not include $10,000 of inventory in the physical count at the end of the year. What was the impact to the organization's financial statements?
If $10,000 of inventory is mistakenly not included in the physical count at the end of the year, this means the ending inventory is understated. When ending inventory is understated, the cost of goods sold (COGS) will be overstated because less inventory on hand implies that more was sold during the year than actually was. As a result, higher COGS leads to lower net income. Therefore, cost of sales is overstated and net income is understated.
It's D. This article (https://www.accountingcoach.com/blog/understating-ending-inventory) (as well as the Gleim textbook) states that if the ending inventory is understated, COGS is overstated and net income is understated. In this question, $10,000 was not accounted for in the ending inventory (understated), meaning the cost of what was sold that year is documented as MORE COSTLY (overstated) and when there's more COST, there's less profit (understated net income).
A cant be correct. If closing inventory did not include $10 000, inclusion of this amount will reduce cost of sales and increase profits. That means cost of sales was overstated and profits understated.
why not D?
D is the correct answer
D is correct
Hello. I think "D" is correct answer. Please can anyone prove that "A" is correct answer?
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