If Ending Inventory on December 31, 2007, Is Overstated, Then

question 43

Multiple Choice

If ending inventory on December 31, 2007, is overstated, then:

• A)cost of goods sold for the year ended December 31, 2008, will be understated.
• B)gross profit for the year ended December 31, 2008, will be understated.
• C)cost of goods sold for the year ended December 31, 2007, will be overstated.
• D)gross profit for the year ended December 31, 2007, will be understated.

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Definitions:

Matching Principle

An accounting principle that dictates that expenses should be matched with the revenues they helped to generate in the same period.

Revenues

Revenues refer to the total amount of money earned by a company from its business activities, such as the sale of goods or services, before any expenses are subtracted.

Expenses

Outflows or other using up of assets or incurring of liabilities during a period from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity's ongoing major operations.

Accrual Adjusting Entry

An accounting entry made to record revenues earned or expenses incurred that have not yet been recorded through regular transactions.