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The question goes:
A business received a delivery of goods on 29 June 2006, which was included in inventory at 30 June 2006. The 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 4I thought both the inventory and the profit for the year ended 30 June 2006 have been overstated, so the answer should be D.
However, the answer given is C.
How could this be? Anybody knows? Appreciate if someone can enlighten me. Thanks!
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Per my understanding (also doing F3) I would say that because the invoice was not recorded until July 2006, the invoice amount was not recognised in the cost of goods sold calculation, thus gross profit will be overstated.
Inventory is not overstated as the delivery was received on 29th June and included in the inventory count on 30th June. Therefore inventory should be up to date.
Hope that helps.
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Can anyone help me on the status of Inventory, when its in WIP mode. Is it a debit enry or credit? Be grateful for your comments, anyone.
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