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Kiera’s interior design business received a delivery of fabric on 29 JUNE 20X6, which was included in inventory at 30 JUNE 20X6. The invoice for the goods was recorded in July 20X6.
What effect will this have on the business?
1 Profit for the year ended 30 June 20×6 will be overstated
2 Inventory at 30 June, 20×6 will be understated
3 Profit for the year ended 30 June 20×7 will be overstated
4 Inventory at 30 June 20×6 will be overstateda) 1 and 2
b) 2 and 3
c) 1only
d) 1 and 4Please explain the answer to me…
The had received the goods before the year end and so they are correct to include them in inventory.
However, they should also have recorded the invoice. Because they have not recorded the invoice, the purchases will be understated in year to June X6, so the cost of sales will be understated, so the profit will be over-stated.The answer is therefore (c)
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