Which of the Following Errors Would Most Likely Lead to an Overstatement

question 29

Multiple Choice

Which of the following errors would most likely lead to an overstatement of income?

• A) Recording revenue in the next period when the cash is collected although it is earned in the current year.
• B) Recording an expense incurred in this year when the cash is paid next year.
• C) Failure to adjust deferred rent revenue account for the portion of rent earned this year.
• D) Failure to adjust prepaid expenses account for the portion of insurance expired this year.

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Definitions:

FIFO Cost Method

An inventory valuation method that assumes goods are sold in the order they were acquired, using the costs of the earliest items first.

Ending Inventory

This is the total value of all inventory still available for sale at the end of an accounting period.

Periodic Inventory System

An inventory accounting method where inventory levels and cost of goods sold are determined at the end of an accounting period.

Beginning Inventory

The value of all inventory that a company has in stock at the start of an accounting period.