An Error in the Physical Count of Goods on Hand

question 160

Short Answer

An error in the physical count of goods on hand at the end of a period resulted in a $10,000 overstatement of the ending inventory. The effect of this error in the current period is $$\begin{array} { l c c } & \text { Cost of Goods Sold } & \text { Net Income } \\\text { a. } & \text { Understated } & \text { Understated } \\\text { b. } & \text { Overstated } & \text { Overstated } \\\text { c. } & \text { Understated } & \text { Overstated } \\\text { d. } & \text { Overstated } & \text { Understated }\end{array}$$

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Definitions:

Raw Materials

Basic materials from which products are made, typically extracted natural resources or agricultural products.

Finished Good

A product that has completed the manufacturing process and is ready for sale to consumers or other buyers.

Internal Auditing

The independent and objective evaluation of an organization's financial and operational activities, typically performed by in-house staff.

Construction Firm

A company that specializes in building and designing infrastructure, buildings, and other architectural projects.