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A business received a delivery of goods on 29 June 2006, which was included in inventory at 30 June 2006. Th
invoice for the goods was recorded in July 2006.
What effect will this have on the business?
(1) Profit for the year ended 30 June 2006 will be overstated.
(2) Inventory at 30 June 2006 will be understated.
(3) Profit for the year ending 30 June 2007 will be overstated.
(4) Inventory at 30 June 2006 will be overstated.A 1 and 2
B 2 and 3
C 1 only
D 1 and 4
(2 marks)
Why cant the inventory at 30 june 2006 be overstated?(Please head up your questions with the name of the topic – not just the word ‘doubt’ so that others can benefit from the answers as well.)
If the goods were receive before the year end (which they were) then it was correct to include them in inventory.
We should have accrued for the invoice but they have not. That means that the profit for the year to 30 June 2006 is overstated.
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