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on the 29th of jun x6, business received a delivery of fabric. it was included in the inventory on 30 jun x6.
the invoice was recorded in july x6.
what effect will this have on the business:
the answer is: profit for the year ended 30 jun x6 will be overstated.
i do not understand the explanation given in the text…:(
“included in inventory” means what?
At the end of the year (i.e. 30 June) they will count the inventory in order to show it in the financial statements.
These goods were included in the inventory counted, which is correct because they were received on 29 June.However, they should also have accrued for the cost of these goods and it seems that they did not record anything until July.
So…..they need an accrual, which will increase the figure for purchases. This will increase the cost of goods sold and therefore reduce the profit.
At the moment the profit is therefore too high (overstated).oh!!!
by the way.. i had written down the accrual entry for this… but to be honest, i did not know if there cd be an accrual on purchases..i guess that was dumb
and i shd have seen it as as “should have done”, “what was done”…
thank u sir!!
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