Assume That a Purchase Invoice for $1,000 Was Appropriately Recorded

question 103

Multiple Choice

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2012, but the inventory was excluded in error during the ending inventory count. What impact will this have on fiscal 2013 financial reporting?

• A)Gross margin is understated by $1,000.
• B)Cost of sales is overstated by $1,000.
• C)Ending inventory is not affected by the prior year inventory counting error.
• D)Beginning inventory is overstated by $1,000.

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Definitions:

Variable Costs

Expenses that vary directly with the level of production or service delivery.

Fixed Costs

Fixed outgoings, including rent, salaries, and insurance, that are unaffected by production or sales volumes.

Net Income

The total earnings or profit of an individual or business after deducting expenses and taxes.

Net Income

The total profit of a company after all expenses and taxes have been subtracted from total revenue.