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A bussines received delivery of goods on 30 June 2006, which was included in inventory at 30 Julne 2006. The invoice for the goods was recorded in July 2006.
What effect will have on the bussiness?
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) 1and 4
B) only 1
C) 1 and 3
D)only 3Please explain the answer
The invoice should have been accrued for at 30 June 2006. It has not been recorded and so purchases are understated, which means cost of sales are understated and therefore the profit has been overstated. It has been recorded in the following year when it should not have been, which means cost of sales for year to June 2007 are overstated and therefore the profit is understated.
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